Fees For Sears Holdings Bankruptcy Are Insane

The billing by professional consultants and law firms is getting insane for the bankruptcy case of Sears Holdings (SHLD).

In a recent filing (docket 2733) by FTI Consulting for just the month of Jan. 2019, there is a consultant that is billing:

“Arechavaleta, Richard Consultant Independent Contractor $225 (rate per hour) 402.5 (hours billed) total amount $ 90,562.50

He works at a low rate of only $225 but really 402.5 HOURS IN JUST A MONTH?

Sears Holdings Corp. Liquidating

Sears Holdings Corp (SHLDQ) is mostly liquidated after the sale of their almost all of their assets via newly created limited liability companies to Lampert/ESL. As the Official Committee of Unsecured Creditors stated in their limited objection to extending the exclusive period to file a reorganization plan (docket 2544) “upon the closing of the sale, (i) the Debtors no longer will have any operating businesses for which the Chapter 11 Cases are a disruption, (ii) the only assets of any significance that will remain in the Debtors’ estates will be litigation claims…”

Sears wanted to extend the exclusive period to file a reorganization plan until June 12. The UCC objected wanting only a 30 day extension. An agreement was reached and the exclusive period to file is extended to April 15 and to solicit ballots by June 12. There will be a hearing on March 21 to update the court on their progress (docket 2626).

They are expecting a liquidation trust will be created. The trust would pay money for releases and any payments from future litigation.

The SHLDQ stock price soared this week on incorrect information on chat rooms and a modest short squeeze-not on any bullish facts.

5th Circuit Court Gives Ulta Petroleum a Partial Victory on Make-Whole

The 5th Circuit Court of Appeals handed down their decision late Jan. 17 on the “Make Whole” case for Ultra Petroleum (UPL). The 27 page opinion can found here.

“For that reason and others explained above, we REVERSE in part, VACATE in part, and REMAND for further proceedings consistent with this opinion”

“In that court’s view, a plan impairs a creditor if it refuses to pay an amount the Bankruptcy Code independently disallows. In reaching that conclusion, the bankruptcy court split from the only court of appeals to address the question, every reported bankruptcy court decision on the question, and the leading treatise discussing the question. We reverse and follow the monolithic mountain of authority holding the Code—not the reorganization plan—defines and limits the claim in these circumstances. Because the bankruptcy court saw things differently, it ordered the debtors to pay certain creditors a contractual Make-Whole Amount and postpetition interest at a contractual default rate. We vacate and remand those determinations for reconsideration. “

A partial victory for UP. The court REMANDED the Make Whole AMOUNT. “One last note on our remand of the Make-Whole Amount.”

UPL did win that “The creditors here have no legal right to post-petition interest at the default rates.”  This was a dispute about what was the appropriate rate to use.

Lampert’s Credit Bid For Sears Faces Major Problem

The issue of Lampert/ELS being about to credit bid in trying bid for the assets of Sears Holdings (SHLDQ) is a huge issue for investors in Sears 2lien and unsecured notes.

At a status conference on January 8 in bankruptcy court, Judge Drain said that Lampert could include a credit bid in his bid and that the issue of him using a credit bid would be considered during the auction to be held January 14. His comments were made after the court was informed that under an agreement with various stakeholders, the January 11 hearing to consider credit bidding was cancelled.

The key issue here is section 363(k)

“At a sale under subsection (b) of this section of property that is subject to a lien that secures an allowed claim, unless the court for cause orders otherwise the holder of such claim may bid at such sale, and, if the holder of such claim purchases such property, such holder may offset such claim against the purchase price of such property.”

Certain parties, including the Official Committee of Unsecured Creditors are contesting if Lampert’s claim should be an “allowed claim”.

Below are some assertions and  interesting case citations in a filed objection to the bidding and sale procedure (docket 155) in Shoreline Energy bankruptcy case.

In re Daufuskie Island Props., LLC, 441 B.R. 60, 63–64 (Bankr. D.S.C. 2010) (citing Nat’l Bank of Commerce of El Dorado v. McMullan (In re McMullen), 196 B.R. 818, 835 (Bankr. W.D. Ark. 1996)); Morgan Stanley Dean Witter Mortgage Capital, Inc. v. Alon USA L.P. (In re Akard St. Fuels, L.P.), No. 3:01-CV1927, 2001 WL 1568332, at *3 (N.D. Tex. Dec. 4, 2001) (refusing a request to credit-bid where the secured lender’s lien was subject to a bona fide dispute that could not be resolved before the sale). A dispute is bona fide is “there is an objective basis for either a factual or legal dispute as to the validity of the debt.” In re Octagon Roofing, 123 B.R. 583, 590 (Bankr. N.D. Ill. 1991) (citing In re Busick, 831 F.2d 745, 750 (7th Cir. 1987)). “Under this standard, a court need not determine the probable outcome of the dispute, but merely whether one exists.”

Nothing More For Investors In New Sears Bid By Lampert

The SEC filing todayby Eddie Lampert in his bid for Sears Holdings (SHLDQ) assets includes additional payments for various priority claims but NOTHING for investors such as 2lien noteholders, unsecured noteholders, and shareholders.

This Revised Proposal includes the assumption of additional liabilities that may increase the total purchase price presented by Transform Holdco in the Going Concern Proposal by over $600 million, which, together with the purchase price set forth in the Going Concern Proposal, would provide aggregate consideration to the Debtors in excess of $5 billion. These additional assumed liabilities include (i) up to $166 million of payment obligations with respect to goods ordered by Debtors prior to the closing of the proposed transactions (but as to which goods Debtors have not yet taken delivery and title prior to closing), (ii) up to $139 million of 503(b)(9) administrative priority claims, (iii) up to $43 million of additional severance costs to be incurred by the Debtors, (iv) all cure costs related to contracts to be assumed by Transform Holdco (estimated to be up to $180 million) and (v) up to $135 million of property taxes with respect to the properties to be acquired by Transform Holdco.

List of 80 More Sears Stores to Close

On Friday December 28 Sears Holdings (SHLDQ) filed a motion to get approval to close 80 more stores. Here is the list from that filing docket 1444:

Objections to the closing have to be filed within 10 days. These are in addition to other store closings announced over the last few months. More closings could be coming even if CEO Eddie Lampert wins his bid to buy Sears,

Is It Time For Sears To Convert To Ch.7 Bankruptcy And Liquidate ASAP

At what point does Sears Holdings (SHLDQ) realize that they just can’t continue in Ch.11 with the expectation of selling Going Forward stores because they are burning cash? Instead of continued borrowing under Jr DIP for an additional $350 million and then in January coming back into court asking for approval of even more DIP financing, would be better just to liquidate ASAP?

Steven Simms from FTI Consulting stated that his firm estimates Sears will need an additional $200 million besides the $350 million Jr. DIP. The declaration in support of the DIP by Sears CFO Robert Riecker (docket 866) clearly indicated how worse their finances have become post Ch.11 filing.

“The Debtors are in need of an immediate infusion of liquidity. The $350 million in incremental liquidity to be provided by the Junior DIP Financing will allow the Debtors to continue operating in the ordinary course with a larger number of stores while they try to secure a buyer for a substantial part of their business as a going concern. Based on my experience as CFO of Sears Holdings and particularly my knowledge of the Company’s projected cash needs, the $250 million interim draw is the minimum amount necessary to get the Debtors through to the proposed final hearing date of December 20, 2018. Absent authority to enter into and access the Junior DIP Financing, the Debtors will be unable to continue operating their businesses”

So if it takes $250 million just to get to December 20, that would leave only $100 million to get to the end of the Ch.11 bankruptcy process.They may be back in court asking for yet another approval for more DIP financing.

If Judge Drain had any backbone he would deny the Jr DIP financing motion. This would most likely force an interested party to file a motion to have this bankruptcy case converted to Ch.7.

Sears May Try to Keep 505 Stores Open

Sears Holdings (SHLDQ) may try to keep more stores opened than expected. According to a court filing (docket 729) on Nov. 14, the number of stores Sears is going to try to sell is about 505.  (Go Forward Stores)  Prior filings by Sears stated that there were only about 400 EBITDA positive stores. It seems, therefore, that they are trying to sell even stores are EBITDA negative.

This information was supplied by Steven Simms of FTI Consulting in a declaration in support of the Official Unsecured Creditor Committee objection to the Global Bidding Procedure. FTI estimated that Sears may need an additional $200 million in cash besides the $350 million Jr. DIP financing that was also filed on Nov. 14. That DIP has an interest rate of L+11.5%.

Because of length of time to complete the process to sell stores under the company’s proposal, the official creditor committee is pushing to have an immediate sale of all the stores to take advantage of the holiday shopping season and to reduce the expenses on professional fees ($5 million per week) and DIP interest expenses.