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Katherine Ross [00:00:00]
The decline of Sears. What should investors watch for at the Sears auction? I got a bankruptcy attorney to break down Sears' potential collapse and what investors can do.
David Wander [00:00:08]
Let's look at this as the end of the beginning for Sears. Because first of all on the 14th is the auction so you'll have Mr. Lampert bid against the liquidating bid or values that the creditors committee says the liquidation of the company is worth. The process can go on for at least two to three days. They have a deadline of January 16th at 5:00 p.m.. But as anyone who follows bankruptcy knows in this case deadlines can always be pushed out. And then there's going to be I guess a few weeks before the hearing at the end of January for the judge to determine which is the highest and best bet.
Katherine Ross [00:01:01]
Is the five billion bid from Eddie Lampert' s hedge fund enough?
David Wander [00:01:05]
Well when you say enough you have various groups of creditors and even non creditors like employees who have some claims but basically want to keep their jobs. And each group is going to look at the bid from their own enlightened self-interest. So the secured creditors may do well. Some landlords will do well if their leases are assumed. Some landlords won't do well if their leases are being rejected. Employees who work at the stores that are going to continue, they'll have their jobs and the employees at the stores that are being closed won't have their jobs. One of the improvements in this in the bid that came about last night is additional claims from the bankruptcy. And what we call the 503(b)(9) claims. Those are vendors who deliver goods within 20 days of the bankruptcy. It appears they'll be paid. We don't know if it'll be paid in whole or in part because in the bid, there's a line item of 139 million dollars for the 503(b)(9) claim, but I don't believe any one other than the inside professionals knows what the total amount of that is. And right now it doesn't look like there's money for the unsecured creditors coming from the bid. But there are other assets that are not being included in the bid that can be liquidated. So well it doesn't look like there's much fund secured creditors, we don't know the full details yet.
Katherine Ross [00:02:45]
So let's break this up into two sections. If Sears accepts the bid what happens?
David Wander [00:02:50]
Well, if they accept the bid and I assume you're presuming then the judge says that is the highest and best bid then we'll have the rehabilitated series of 425 stores supposedly that will continue. And how long it will continue for we don't know because that's the other unknown which is can Sears with a new balance sheet, and the core of good assets going forward. Is it a viable entity in this day and age of retail companies being very challenged. Then you also have other aspects of the bankruptcy case that are not part of the bid, other assets to be sold, to be liquidated. And then there are issues of claims. Not the claims against Mr Lampert and his entities because there's a release for those claims built into the bid and in fact he's even allocated a small portion of the cash component of the bid to the release. And I believe that's 35 million dollars.
Katherine Ross [00:04:04]
And if Sears does I accept the bid what happens then?
David Wander [00:04:08]
Well then that presumes that they're going to go with the liquidation. And in that case you will immediately have the going out of business sales conducted. Then presumably the creditors committee will request permission from the judge to commence a lawsuit against Mr. Lampert and his entities. Or they'll do additional discovery before they commence the lawsuit. But that's the other big driver in this case.
Katherine Ross [00:04:40]
As an investor, what should I be looking at when it comes to companies about to declare bankruptcy. Is there anything that any advice you have for that?
David Wander [00:04:50]
Well you know there are different kinds of investors. For example, there are investors who buy distressed debt. In this case there's a market for different parts of the debt, mainly the 503(b)(9) claims and there's a market for that. And every day and every week there are solicitations being made for those 503(b)(9) claims. Previously in the case they were offering 70 cents in the dollar. The latest I've seen is 50 cents. And that may go up when people get more of a feel as to what the total 503(b)(9) claims are. But investing in distressed assets is not for the weak of heart and it's become a big business. But there is no, right before there's a filing by that time the good deals have already been taken and how you analyze a company and its slide into bankruptcy is an art that many professionals are working on.

Is it time to say goodbye?

David Wander, partner at Davidoff Hutcher & Citron sat down with TheStreet to discuss all things Sears (SHLDQ) . 

"Let's look at this as the end of the beginning for Sears," Wander said. "Because, first of all, on the 14th is the auction so you'll have [Eddie] Lampert bid against the liquidating big or values that the creditors committee says the liquidation of the company is worth. The process can go on for at least two to three days."

On Thursday, Jan. 10, Lampert's hedge fund, ESL, announced that it was raising its bid to $5 billion from $4.4 billion. 

TheStreet asked if the $5 billion bid was enough for the iconic retailer. 

"Well when you say enough you have various groups of creditors and even non creditors like employees who have some claims but basically want to keep their jobs. And each group is going to look at the bid from their own enlightened self-interest," Wander answered. "So the secured creditors may do well. Some landlords will do well if their leases are assumed. Some landlords won't do well if their leases are being rejected. Employees who work at the stores that are going to continue, they'll have their jobs and the employees at the stores that are being closed won't have their jobs."

Wander broke down the two scenarios that could come about after Jan. 16. One scenario is that Sears accepts Lampert's hedge fund's bid and the other is that Sears rejects it and instead chooses to liquidate itself. 

Jim Cramer broke down retail and Sears in his daily column on Thursday.

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