Bondholders Fret as Sears Burns Cash

Bondholders and ratings agencies are taking an increasingly dim view of Eddie Lampert’s Sears Holdings, owner of the Sears and Kmart chains. Even though it lost $170 million in the first quarter, the company last month said it would spend as much as $500 million to buy back shares. On June 21, Fitch Ratings cut Sears’s rating to B, five levels below investment grade, citing a “precipitous decline” in earnings.

TD Asset Management’s Greg Kocik says the company’s priorities are wrong. “It’s not the right time to buy stock,” says Kocik, lead manager of the TD High Yield Bond Fund, which owns Sears debt. “They just need to hunker down and refocus on better execution.” Sears sold $1.25 billion of secured bonds yielding 6.625 percent in September, in part to fund stock repurchases. The price of those bonds, due in October 2018, fell to 90.3¢ on the dollar on June 16 from 92.5¢ at the end of May as investors fretted about declining earnings. Sears has about $3.5 billion of debt, according to Monica Aggarwal, an analyst who grades the company at Fitch.