Sears Holdings – Seeks DIP Financing of $1.83 billion, Commits to May 14, 2019 Exit

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October 15, 2018 – Sears Holdings requested Court approval for postpetition, debtor-in-possession (“DIP”) financing and the use of cash collateral [Docket No. 7]. The financing motion explains, “The Prepetition First Lien Lenders have agreed to provide up to $1.83 billion senior secured superpriority priming debtor in possession asset-based credit facility (the ‘DIP ABL Facility’), with $300 million of new incremental capacity consisting of (i) a revolving asset-based credit facility with aggregate commitments of approximately $189 million (the ‘DIP ABL Revolver’) and (ii) an asset-based term loan in an aggregate principal amount of approximately $111 million (the ‘DIP ABL Term Loan’), both of which will be made available upon the entry of the Interim Senior DIP Order. The DIP ABL Facility will be secured by the same collateral as the Prepetition ABL Facility (the ‘ABL Collateral’), senior liens on unencumbered collateral and junior liens on previously encumbered collateral (excluding the ABL Collateral).…In addition to the DIP ABL Facility, the Debtors intend to solicit, and have made substantial progress on a term sheet for a $300 million junior debtor in possession term loan (the ‘Junior DIP Financing,’ and together with the DIP ABL Facility, the ‘DIP Financing’). ESL Investment, Inc. and certain related entities (‘ESL’) have indicated an interest in providing a substantial portion of the Junior DIP Financing.”

Proposed interest rates are:

  • DIP ABL Revolver:  Base rate + 3.50% or, after entry of the final order, Libor + 4.50%, undrawn commitment fee for 0.075%
  • DIP ABL L/C Sub-facility: L/C Fee 0.45%, fronting fee 0.125% 
  • DIP ABL Term Loan it is Libor + 8.00%; and
  • Junior DIP Financing: Libor + 9.50%
Pursuant to the terms of the DIP ABL Facility, the Debtors have agreed to the following timetable:

  • February 18, 2019 deadline for filing Plan of Reorganization and a Disclosure Statement.
  • March 25, 2019 deadline for Court approval of Disclosure Statement. 
  • April 29, 2019 deadline for Court confirmation of Plan. 
  • May 14, 2019 deadline for effectiveness of Plan, exit from bankruptcy.
Senior Secured DIP Facility: Who’s Who:

  • Joint Lead Arrangers and Book Runners: Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPFS”), Wells Fargo Bank, National Association (“Wells Fargo”) and Citibank, N.A. (“Citibank”
  • Administrative Agent: Bank of America 
  • Co-Collateral Agents: Bank of America and Wells Fargo Bank 
  • Lenders: On the Initial Closing Date, Bank of America, Wells Fargo and Citibank
The Debtors also filed a motion seeking approval to file under seal the redacted fee letter related to the DIP ABL facility [Docket No. 57], which notes, “The Fee Letter contains confidential commercial information concerning the commercial contract terms between the Company and the DIP Lenders. In accordance with custom and practice in the finance industry, proprietary pricing information is generally not made publicly available. Given the highly competitive nature of the investment banking and finance lending industries, disclosure of such pricing information would give competitors an unfair strategic advantage and thereby impair the ability of financial institutions to bid and compete for other financing’s. Further, because debtor-in-possession financing’s are only a small fraction of all syndicated financing’s arranged by the DIP ABL Credit Parties, requiring them to disclose certain information concerning their fees in this context but not in others could have a ‘chilling effect’ discouraging them and other competitor institutions from providing debtor-in-possession financing facilities on terms favorable to the debtors.”

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