Pension Benefit Guaranty Corp., the U.S. government agency that protects retirement benefits, is seeking to block Eddie Lampert’s $5.2 billion agreement to buy Sears Holdings Corp. out of bankruptcy, according to court documents.
PBGC estimates it has about $1.74 billion in claims against the failed retailer, whose pension plans are in imminent jeopardy of being terminated in the sale to Lampert’s hedge fund firm ESL Investments, according to documents filed January 26 with the U.S. Bankruptcy Court for the Southern District of New York. The deal intentionally undermines PBGC’s contractual pension protections, the government agency alleged in the document.
Sears announced earlier this month that ESL won the auction to buy its assets out of bankruptcy, expecting the purchase to be completed on or around February 8 pending court approval. PBGC’s concerns over the deal are tied to the retailer’s licensing agreements with home appliance brand Kenmore and car battery brand DieHard.
“The purpose is clear: to deliver the Kenmore and DieHard trademarks to ESL free and clear of PBGC’s interests,” the U.S. government's pension insurer said in the court documents. “This architecture violates the bankruptcy code, and as a result, the proposed sale cannot be approved.”
PBGC alleges the sale is structured to shield Sears and ESL from liability under its pension plan protection and forbearance agreement with the bankrupt retailer. Sears sponsors two pension plans covering about 90,000 participants, according to the court documents.
PBGC said its agreement with Sears “preserves value” for the pension plans by providing it with interests in the Kenmore and DieHard trademarks and associated licenses. Lampert’s hedge fund firm can foreclose on the trademarks due to the “free and clear” provisions in the sales agreement, PBGC said in the court documents.
ESL will “presumably” point to the “free and clear” protections under the proposed sales to avoid pension liabilities, the government's pension insurer said in the documents.
A spokesperson for ESL said the firm had no immediate comment on PBGC’s motion objecting to its purchase of Sears.