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The Morning Brief: ESL’s Lampert Gives Sears Another Life Line

Call this Eddie Lampert’s money pit. The once-hotshot hedge fund manager agreed to lend Sears Holdings Corporation another $200 million. Affiliates of his hedge fund firm, Bay Harbour, Florida-based ESL Investments, will provide the funds through a secured standby letter of credit facility. The retailing giant says in a press release the money will be used to fund its operations. Under the facility the company could request to expand the funding by another $300 million, bringing the total to as much as $500 million. Citibank is serving as administrative agent and issuing bank.

“As Sears Holdings has consistently shown, we will take actions to adjust our capital structure, generate liquidity and manage our business to enable us to execute on our transformation while meeting all of our financial obligations,” says Sears chief financial officer Jason Hollar in a press release. “This new standby letter of credit facility further demonstrates that Sears Holdings has numerous options to finance our business strategy.” Under the financing arrangement, Sears will pay an upfront fee equal to 1.50 percent of the amount of commitments and will pay a commitment fee of 5.75 percent per year on the amount of the lender deposit, according to a regulatory filing. Over the past few years Lampert has loaned Sears more than $800 million, according to various reports.

Shares of Sears surged about 13.6 percent the last two days of the year, following the financing announcement. Even so, the stock finished the year down nearly 55 percent.

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Shares of hedge fund killer Valeant Pharmaceuticals International finished the year at $14.52, putting them down nearly 86 percent for 2016. This sharp decline has played a big role in the 11.7 percent loss posted by Bill Ackman’s Pershing Square Holdings, managed by his firm Pershing Square Capital Management, for the year through December 27 and the double-digit losses suffered by John Paulson’s Paulson & Co. It is also not surprising that Hound Partners staged a sharp recovery in the second half of 2016 after finally unloading its large stake in the controversial, embattled drug company. At the end of the third quarter, the three largest shareholders were Pershing Square Capital Management, Paulson and ValueAct Capital Management. PointState Capital was the fifth-largest shareholder.

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Elliott Management Corp. liquidated its entire stake of 7.75 million shares of LifeLock, an identity theft protection company. In November, Symantec agreed to acquire LifeLock for $2.3 billion. Elliott disclosed its activist stake in the company in June 2016.

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