Updated from 7:18 a.m. with additional details
Fitch Ratings remains deeply concerned about the path forward for dying retail icon Sears Holdings (SHLD) .
"No, nothing has changed relative to [our thinking] a few months ago," Monica Aggarwal, managing director of Fitch's retail team told TheStreet after another disastrous quarter for the owner of Sears and Kmart. In September, Fitch said Sears had "significant default risk" within the next 12 to 24 months, triggered by years of weak store traffic and high levels of debt. Fitch defined default risk at the time as "most likely a bankruptcy, or a Chapter 11 filing."
Aggarwal's team estimates Sears will burn through an eye-popping $1.6 billion to $1.8 billion in cash this year. The result would make it eight straight years of cash burn for Sears, according to Bloomberg data.
At issue for Sears is how it will repay some $2.8 billion in high yield bonds and institutional term loans coming due in the next few years.
As it stands, Sears' cash coffers and lifelines to more greenbacks are shrinking rapidly. Sears said Thursday that its total liquid availability -- which consists of cash and availability under a credit facility -- clocked in at a minuscule $432 million at the end of the third quarter. A year ago, total liquid availability was $1.3 billion. "Things are getting worse, but we expected them to get worse," said Aggarwal.
In July 2017, or about eight months from now, Sears will have a $500 million term loan secured by 21 properties come due. It's already borrowed all but $11 million of that sum.
The stunning decline in readily available liquidity for Sears could be boiled down to two things.
First, Sears' cash and equivalents fell to $258 million in the third quarter, down from $294 million a year ago as a result of another three months of stunning losses. Secondly, Sears only had $174 million of availability left under its $1.971 billion credit facility. Last year at this time, availability was $963 million.
In a new filing, Sears reiterated that it was seeking ways to boost its liquidity through expense cuts, selling off real estate, additional debt financing and efforts to sell brands Kenmore, Craftsman, Diehard and Sears Home Services. The precarious position is nothing new for Sears and Lampert, who has proven crafty when it comes to raising money to delay the inevitable at the crippled retailer (see below chart). But based on Sears' third-quarter results, it's hard to argue the position today isn't the most dire under Lampert's ownership.
Aggarwal points out that even if Sears manages to raise money, it may have to go toward servicing its under-funded pension plan (about $1.5 billion) rather than to shore up liquidity levels.
Fitch isn't alone in their bearish outlook on Sears. Also in September, Moody's slashed its speculative-grade liquidity rating on Sears one notch to SGL-3 from SGL-2. The new rating reflects the likelihood that Sears will continue to need outside financing to stay in business, and that it may require covenant relief to maintain orderly access to funding lines.
Sears' actions through the years to stay alive.
The struggling owner of Sears and Kmart reported a staggering third-quarter adjusted loss of $3.11 a share as it felt intense competitive pressures in businesses such as appliances and apparel from Home Depot (HD) - Get Home Depot, Inc. Report , Lowe's (LOW) - Get Lowe's Companies, Inc. Report , J.C. Penney (JCP) - Get J. C. Penney Company, Inc. Report , Best Buy (BBY) - Get Best Buy Co., Inc. Report and Walmart (WMT) - Get Walmart Inc. Report . A year ago, the company delivered a loss of $2.86 a share. Net sales in Sears' fiscal third-quarter plunged 13.8% to $5.0 billion.
The effect of yet another loss could almost be felt in the disheartened statement by Lampert.
"While many observers have acknowledged the significant asset base of our company, we understand the concerns related to our operating performance and are committed to transforming our company through our 'Shop Your Way' membership program and our integrated retail investments," Lampert said.
Those looking for signs from the third-quarter results that Sears could sidestep a potential bankruptcy filing in 2017, or a major court restructuring, would come up empty.
Same-store sales at discounter Kmart fell 4.4%, representing the eighth straight quarterly decline. Sales were pressed in some of Kmart's most important categories, such as pharmacy, groceries and consumer electronics.
As for Sears, it notched its ninth consecutive same-store sales decline as sales dived a stunning 10%. Weakness was felt across the board for Sears, with sales falling in home appliances, apparel, and consumer electronics.