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Bruce Berkowitz’s Fairholme Affiliate in Talks with Sears Holdings Corp (SHLD) Regarding Short-Term Loan

Fairholme (Fairx), led by Bruce Berkowitz, has disclosed in a new filing with the U.S. Securities and Exchange Commission that its affiliate St. Joe Company is in talks with Sears Holdings Corp (NASDAQ:SHLD) regarding the $400 million secured short-term loan. According to the filing, St. Joe Company may invest up to $100 million in participation relating to the short term loan.

FAIRHOLME (FAIRX) Bruce Berkowitz

On September 15, 2014, Sears Holdings Corp (NASDAQ:SHLD) reported in a filing with the SEC that it entered into a $400 million secured short-term loan with Edward S. Lampert’s ESL Investments. Mr. Edward S. Lampert is chief executive officer (CEO) and chairman of Sears Holdings Corp (NASDAQ:SHLD).

Under the terms of the agreement, ESL provides a loan to Sears Holdings Corp (NASDAQ:SHLD) worth $400 million, out of which $200 million were already provided on September 15, and the other $200 million will be offered on September 30. The company intends to use the proceeds of the loan for general corporate purposes.

The loan will have an annual base interest rate of 5% and is due December 31, 2014. In addition, the loan is secured by mortages on certain properties of Sears Holdings Corp (NASDAQ:SHLD) and its subsidiaries.

Sears Holdings Corp (NASDAQ:SHLD) is having a weak financial situation. For the second quarter of 2014, the company reported a net loss of $573 million, or $5.39 loss per diluted share, which is higher than $194 million, or $1.83 loss per diluted share, for the same quarter of 2013.

“Our second quarter earnings are unacceptable and we are taking steps to address our performance on several levels. This includes reducing costs as we evolve our business model, investing in our Shop Your Way and Integrated Retail customer initiatives, rationalizing our physical footprint and improving pricing and promotions. As we move through the transformation, our new programs are becoming more prominent both in how we run the company and in how we serve our members, and we are pleased with how our members are responding,” Mr. Lampert said in a statement.

Mr. Lampert holds an interest of around 49% of Sears Holdings Corp (NASDAQ:SHLD), his stake amassing some 51.65 million shares of the company.

Fairholme owns 25.53 million Sears Holdings Corp (NASDAQ:SHLD) shares, equal to 24.0% of common shares outstanding. The stake represents an increase from 24.67 million shares the fund reported in its recent 13F. In its latest 13F, Murray Stahl‘s Horizon Asset Management revealed ownership of 5.83 million shares of Sears Holdings Corp (NASDAQ:SHLD).

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