Eddie Lampert ESL Investments – The Demise of Sears: Lampert Owns the Debt and the Equity?

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How a hedge fund king’s weird ideas about retail destroyed Sears

 

It’s been a long, strange trip to bankruptcy court for Sears — and you can thank a brilliant, reclusive and woefully misguided hedge-fund manager for the ride.

The 125-year-old retailer — for decades one of the nation’s iconic corporations, selling everything from TVs to dresses to riding mowers — filed for bankruptcy early Monday, as shoppers fled its increasingly shoddy stores in favor of younger rivals like Walmart and Amazon.

More stunning, however, is the odd saga that Sears has endured for more than a dozen years now. In 2005, a financial prodigy named Eddie Lampert seized control of Sears by merging it with Kmart. For a while, the surprise deal was the talk of Wall Street, with many reckoning that Lampert was destined to become the next Warren Buffett.

Instead, Sears got crippled by Lampert’s bizarre approach to running the Chicago-based company, which included micromanaging it from his mega-mansions in Connecticut and Florida, flitting between flopped retail experiments and flouting the industry’s basic conventions for investing in stores.

“This guy pivoted from being a successful hedge fund manager to running a retail empire,” said Mark Cohen, a former chief executive of Sears Canada who’s now director of retail studies at Columbia Business School. “But he never viewed anyone’s opinion but his own as valuable.”

Now, 56-year-old Lampert is scrambling to salvage 300 locations from what, before his arrival, had spanned more than 3,500 Sears and Kmart stores. Experts disagree whether the aging chains could have thrived on somebody else’s watch, but one thing is clear: Lampert isn’t the genius that many deep-pocketed investors thought he was.

In its early Monday Chapter 11 filing, Sears said it got $300 million from lenders to keep shelves stocked and employees paid through the holidays, but that it was still in talks with Lampert, who stepped down as CEO, to get as much as $300 million more.

In words that rang eerily familiar to longtime followers of Sears, Lampert said his hedge fund “will continue to press forward with the goal of seeing Sears emerge from this process positioned for success.”

The slow-moving train wreck began in 2003, when Lampert startled investors by scooping Kmart out of bankruptcy through an $800 million debt investment. Most had viewed Kmart as hopeless, but Lampert soon cut a deal to sell 70 of its 1,400 stores to Sears and Home Depot for $900 million. Kmart shares leaped, suddenly making Lampert’s $800 million bet worth more than $4 billion.

Lampert — a numbers whiz whose college roommate at Yale was Treasury Secretary Steve Mnuchin, and who only a few years later worked for ex-Treasury Secretary Robert Rubin at Goldman Sachs — was now a Wall Street celebrity. A who’s who of A-list investors — the Tisch family, the Ziff publishing heirs, Michael Dell and Mnuchin — poured into Lampert’s Connecticut-based hedge fund, ESL Investments. David Geffen gushed that he had made more money with Lampert than in all his years as a music mogul.

Notoriously tight-lipped and stingy with interviews, Lampert’s mystique only grew in 2003 when he got kidnapped and held hostage in a motel bathroom for 30 hours before talking his way out of the fix. Just days after he was released by captors on an I-95 exit ramp near ESL’s offices, Lampert was back negotiating the Kmart deal. His next big move: the $12 billion deal in 2005 to buy Sears with Kmart’s surging shares.

Then as now, Sears and Kmart both were among the dingiest, dowdiest and aged retail brands in the US. Yet merged together as Sears Holdings, they quickly became the sexiest story on Wall Street as pundits scrambled to guess Lampert’s thinking. As the new chairman, Lampert nixed quarterly conference calls, instead firing off annual, Buffett-style shareholder letters. Declaring that he worked for investors, not shoppers, Lampert railed against the traditional tenets of retailing, yanking yearly budgets for remodeling and staffing stores that he insisted were wasteful.

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Blue Gold Equities LLC (a/ka/a (Seasons Kosher Grocery Store)) Chapter 11 Filings

 

Blue Gold Equities LLC
(Seasons Kosher Grocery Stores)
Chapter 11 Bankruptcy Filing
Precedent Research Resources

We Have Utilized Our Industry-Leading Database of Almost Four Million Court Filings From Over 2,750 of the Largest Chapter 11 Bankruptcy Cases Filed Nationwide to Give You a Head Start on Researching This Case

 

  • The company operates the Seasons chain of kosher grocery stores/supermarkets with approximately eight locations in New York, New Jersey and Maryland.
  • The company also has plans to open an additional location located in Cleveland, Ohio.
  • Seasons’ website is: https://seasonskosher.com/
  • As of the Petition Date, the Debtors owned assets of approximately $31 million based on book value. 
  • As of the Petition Date, the Debtors had aggregate liabilities of approximately $42 million, including approximately $8.8 million owed to Bank United and approximately $8 million owed to the Consultants. 
  • The Debtors’ revenue for 2018 through the Petition Date is approximately $63 million.
  • In or around November 2017, Consultants commenced an arbitration proceeding in a Beth Din (an arbitration panel governed by Jewish law) to recover the amounts due under the Consulting Agreement. In or around March 2018, the Beth Din issued an award in favor of the Consultants for $8.3 million.
  • When it was not paid, the Consultants moved to confirm the Award and obtained judgment against the Original Operating Entities, Bloom and Gold.
  • In October 2016, Bank United loaned $10 Million to Seasons Corporate LLC and obtained a security interest in all of Corporate’s assets. The Operating Entities guaranteed the Loan on an unsecured basis. Although payments on the Loan were current at the time the Judgment was issued, Bank United declared a default under the Loan, based on the Judgment.
  • As a result of the actions by the Consultants and Bank United, the Company’s cash was dramatically reduced, rendering it unable to keep the store shelves stocked. Suppliers began to require COD payments and attempts to obtain funding to restock the Stores were unsuccessful.
  • The Company has retained Joel Getzler and William Henrich of the firm of GHA as Co- Chief Restructuring Officers (“CRO”) to assist in the development of restructuring options and negotiation of a reorganization plan, oversee and execute the process for the sale of the Debtors’ assets, monitor and manage the Debtors’  operations and cash flow and guide the Debtors through the bankruptcy process, including performing the necessary bankruptcy administration requirements. Messrs. Getzler and Henrich will commence acting as Co-CRO once the Debtors obtain D&O insurance.
  • The Debtors seek authority to enter into the DIP Facility in the total amount of $5.7 million, which will provide the Debtors with access to as much as $4,000,000 during the period of 14 days after entry of the Interim DIP Order in accordance with the Debtors’ Budget. The Debtors negotiated the DIP Documents as part of their larger discussions with the Prepetition Secured Lender and DIP Lender.
  • The DIP Lenders’ willingness to provide the DIP Loan was contingent on the Debtors’ agreement to enter into an Asset Purchase Agreement, pursuant to which
    the DIP Lender has presented a stalking horse bid to acquire certain of the Debtor’s assets, free and clear of liens, claims and encumbrances, for $12 million, subject to higher and better offers.

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