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Lampert's Sears Still Has Turnaround Options

NEW YORK (The Deal) -- Though recent media reports have cast Edward Lampert's decision to back off from holding Sears Holdings (SHLD - Get Report) commercial paper as a bad sign for the department store retailer, its financials counsel against immediate panic.

And Lampert, who engineered the merger of Sears with Kmart in 2005 and has been CEO for a little over a year, continues to be in it for the long term, according to people familiar with his thinking.

Lampert's hedge fund, ESL Partners, has been steadily dropping its holdings in Sears commercial paper over the past year. The latest pullback was from $140 million in November, to nothing currently, according to regulatory filings. The company still has $9 million in short-term debt, filings show.

Still, Lampert and ESL continue to hold $2.5 billion worth of equity in Sears Holdings, said Scott Tuhy, an analyst at Moody's Investors Service.

So exiting about $140 million in commercial paper of a total investment in Sears of nearly $2.7 billion is not a significant reduction in exposure, he said. Lampert "still has a lot of skin in the game," Tuhy added. Plus, "Sears has a number of levers it can still pull to raise cash, and has clearly shown a willingness to monetize assets," he said.

Lampert said in a Feb. 27 chairman's letter that the company will seek to raise $1 billion this year through asset sales and other strategic alternatives. The spin-off of apparel retailer Lands' End, announced at the end of last year, will raise half that amount, Tuhy said. The department store retailer has sizeable assets it can monetize to raise the other half, he said.

That $1 billion would cover the roughly $1 billion Sears will spend this year on cash interest expense, capital expenditures and required pension contribution, Tuhy said.

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