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U.S. Pension Insurer Slams Lampert Bid for Sears

Monday, January 28, 2019  
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Andrew Scurria | The Wall Street Journal via Yahoo News

The planned sale of Sears Holdings Corp. to its chairman, Edward Lampert, is under fire from the U.S. government’s pension insurer over a $1.7 billion funding gap that the agency says should sink his efforts to buy out the chain.

The Pension Benefit Guaranty Corp. filed papers Saturday in U.S. Bankruptcy Court in White Plains, N.Y., in opposition to Mr. Lampert’s proposed $5.2 billion bid to purchase about 400 Sears and Kmart locations out of bankruptcy. The filing adds an influential voice to the growing chorus of creditors who are unhappy with Mr. Lampert’s offer and would rather liquidate the company.

As the federal backstop for private retirement plans, the PBGC often takes over underfunded pension plans when their sponsors go under. It said on Jan. 18 it would assume responsibility for a pair of Sears defined-benefit pension plans, which cover 90,000 people and are 64% funded. Because the PBGC will make up the difference, it is the largest single unsecured creditor of Sears.

The PBGC acts as a safety net for private retirement plans and receives no taxpayer funding, financing itself with insurance premiums paid by pension funds.

The PBGC anticipated years ago that Sears could file for bankruptcy and stick the agency with a big bill. To protect itself, the PBGC obtained an interest in the company’s Kenmore and DieHard trademarks.

The proposed sale to Mr. Lampert’s hedge fund, ESL Investments, would sever the PBGC’s interests in those brands and the royalty payments they produce, according to the filing. The agency said the hedge fund’s proposal would “seize control” of the trademark licenses, freeing them up for use by Mr. Lampert after the deal closes.

“This architecture violates the bankruptcy code, and as a result, the proposed sale cannot be approved,” the PBGC said.

A spokesman for ESL didn’t immediately respond to a request for comment. ESL has repeatedly denied accusations that it steered Sears into ruin to benefit Mr. Lampert, saying his loan terms were vetted for fairness.

Mr. Lampert is scheduled to ask the judge presiding over the Sears bankruptcy on Feb. 4 to approve his purchase agreement. His offer would give him more than 400 stores in exchange for a series of commitments to absorb some Sears liabilities, including $1.3 billion he previously lent the company.

The key to the buyout is a settlement in which Sears agreed not to challenge Mr. Lampert’s right to bid using debt, instead of cash, as currency. He agreed to pay $35 million for that settlement, which averts the risk of the company challenging the validity of the loans he extended.

But unsecured creditors, including the PBGC, want to sue him over his dealings with Sears going back years, saying he stripped the company of assets and cash and shouldn’t be rewarded with the chance to hive off yet more value once it emerges from bankruptcy.


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