A Possible Chapter 11 Bankruptcy for Sears?
Chapter 11 Bankruptcy Protection
Is bankruptcy imminent for Sears? The company, planning to push through the holiday season, is leaning toward bankruptcy. If Sears files Chapter 11 bankruptcy protection, they would restructure and create a plan for their debt issues, as opposed to having to liquidate immediately.
The parent company of Sears and Kmart is Sears Holdings. According to recent public records, Sears Holdings is operating 506 stores and 360 Kmart stores. In 2005, Sears and Kmart formed Sears Holdings with 3,500 stores in the United States between them. Currently, the company has under 900 stores following a series of store closings, and Sears is closing 46 additional stores.
It is likely that Sears will announce a decision to file bankruptcy. If this happens, the nation’s once largest retailer will need a plan to reorganize debt. Sears has been struggling with debt because of competition such as Walmart and Amazon. It has been difficult to try to keep the Sears retail business appealing to shoppers.
Why do all signs seem to be pointing to Sears declaring bankruptcy? Sears has severe debt, and is under a deadline to pay the debt. Reports are circulating about the financial troubles of the company. A company that files for bankruptcy typically negotiates a loan in order to remain in business while proceeding with the bankruptcy process. Sears’ management was reportedly wanting to use Chapter 11 bankruptcy protection, which would reorganize the debt, and prepare a restructuring plan (versus a Chapter 7 bankruptcy, which liquidates and leads to store closures).
Reports are calling a bankruptcy imminent for Sears. If a deal with lenders is negotiated, it might allow its 900 stores to stay open through the holiday season. Some of the stores would have to close immediately, however (around 150 Sears stores). Even if Sears does remain in business and is profitable over the holidays, they still face challenges.
Retail businesses that have reorganized and restructured through Chapter 11 bankruptcy, don’t have a great track record for success, unfortunately. For example, Toys R Us was forced to liquidate after filing Chapter 11. Sears does have some value in the Kenmore brand.
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