The CEO of Sears, a well-known department store chain with a long history in New Mexico and across the country, recently revealed a plan to hopefully help the company avoid a bankruptcy filing. The plan involves leveraging assets including real estate and inventory, and taking advantage of CEO Eddie Lampert’s hedge fund, ESL Investments, to raise capital and reduce debt.
The proposed plan would involve selling many of the chain’s remaining stores, then leasing them back to the company, thus keeping the stores in business. This, along with other actions, would reduce the company’s debt load by about $1.875 billion, bringing total debt obligations down to about $1.2 billion. While clearly that number is still astronomical, it allows the company to free up cash and make due payments on the debt while remaining in business and avoiding a bankruptcy filing.
If this plan works, it will hopefully keep the store chain solvent, saving jobs in locations across the country. If not, then a Chapter 11 bankruptcy proceeding may end up being the company’s best bet. A Chapter 11 proceeding, better known as a reorganization bankruptcy, would allow the company to restructure assets and debts in an attempt to keep the business going, perhaps under another name or operating scheme. Chapter 11 business bankruptcy is commonly used in situations where a company wants to continue business operations, though it can also be used to wind down a business.
Chapter 11 proceedings are very helpful for struggling businesses, as they allow restructuring of debt, allowing payments to be made over a longer period of time without having to shutter the business and its stores. If your business is struggling, a Chapter 11 filing might be right for you.