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Sears Holdings Corp (SHLD): Bruce Berkowitz Acquires Participation in Short-Term Loan and Picks Up Stake

Bruce Berkowitz‘s Fairholme Capital Management has edged up its position in Sears Holdings Corp (NASDAQ:SHLD), as a new filing with the US Securities and Exchange Commission showed. Fairholme reported holding around 25.56 million shares of the company, versus around 25.51 million held earlier. Fairholme’s activist position amasses 24% of the company, which makes Mr. Berkowitz one of the largest investors of Sears Holdings Corp.

FAIRHOLME (FAIRX) Bruce Berkowitz

With such a huge stake, which amasses over 9.5% of Fairholme’s equity portfolio, Mr. Berkowitz is one of the most interested persons in helping Sears Holdings improve its financial position, with the stock of the company dropping by 57% over the last year. In this way, Fairholme intends to participate in the short-term loan that Sears Holdings Corp (NASDAQ:SHLD) secured in September. According to the filing, The Fairholme Partnership, a fund affiliated with Mr. Berkowitz, acquired a 6.25% participation in the $400 million loan from entities affilated with Edward Lampert‘s ESL Investments. Earlier, another affiliate of Fairholme, St Joe Company also negotiated a possible participation, but has not come to an agreement regarding the terms of the participation.

The loan that Sears Holdings Corp (NASDAQ:SHLD) secured was provided by ESL Investments, led by the company’s CEO, Edward Lampert. The company has already received $400 millions paid in two tranches. The loan has an annual base interest rate of 5%, is due December 31, 2014 and is secured by mortgages on certain properties of the company and its subsidiaries. When the company first disclosed the terms of the deal, it sparked some controversy regarding Mr. Lampert’s involvement.

Moreover, yesterday, Sears Holdings Corp (NASDAQ:SHLD) said in a statement that it intends to get around $380 million, from its interest in Sears Canada by early November. The proceeds will be obtained through a rights offering of Sears Canada shares to the shareholders of Sears Holdings Corp. Out of this amount, the largest part will be received from ESL Partners, which owns 48.5% of Sears Holdings’ common stock. Fairholme also expressed the interest of some of its clients to take part in the rights offering, although the amount of shares has not been disclosed.

With the short-term loan and the additional money from the Sears Holdings Corp (NASDAQ:SHLD) rights offering, Sears Holding plans to generate enough liquidity before the holiday season kicks off. The company has been struggling financially over the last years, and with the latest developments the situation still looks grimm. The market seem to has lost its confidence in the company, with the stock declining further even after the announcement of the loan agreement.

The company requires huge investments to make its turnaround strategies work, the amount probably far exceeding the amount of money that Sears Holdings Corp (NASDAQ:SHLD) has got from its recent developments. Experts consider that the company needs to spend huge amounts of cash to remodell its stores and invest in promotional activities, which is something that the company simply cannot afford, having negative EBITDA and net losses over the last several years.

Disclosure: none

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