Girard Gibbs LLP is investigating potential claims against the Board of Directors of Sears Holding Corporation (Nasdaq: SHLD) for possible breaches of fiduciary duty and other violations of state law.
On September 15, 2014, Sears entered into a $400 million loan agreement with affiliates of ESL Investments, Inc., a hedge fund wholly owned and controlled by Eddie Lambert, Sears’ Chairman and CEO (“Lambert’s Hedge Fund”). The loan requires Sears to pay Lambert’s Hedge Fund an upfront fee of 1.75%, carries an annual interest rate of 5%, and is scheduled to mature on December 31, 2014. Sears can extend the loan to February 28, 2015 with an additional charge of 0.5% on principal amount.
Sears guaranteed the loan and secured it with 25 of its properties, and Lambert’s Hedge Fund “may exercise its reasonable determination to substitute one or more of the properties with substitute properties.” Because Sears has reportedly been selling properties for anywhere between $20 and $50 million over the last few years, potentially the loan collateral is worth considerably more than the amount borrowed. This puts at risk, via liens, Sears’ real estate at discounted values.
In addition, if Sears defaults, Lambert’s Hedge Fund may declare all or any portion of the outstanding indebtedness to be immediately due and payable, exercise any rights it might have under any of the Loan documents, including against the 25 properties, and instead of the 5% interest rate, Sears will be required to pay Lambert’s Hedge Fund a default rate equal to the greater of (i) 7.5% or (ii) the prime rate plus 1%.
This newly announced loan comes on the heels of an almost $1 billion loan Sears’ subsidiaries took out less than a year ago. Furthermore, in the second quarter of this year, Sears announced more than $500 million in net losses and the stock has lost more than 30% of its value year-to-date. Since news of the loan was released, the stock has dropped more than 10% in value.
If you are a Sears stockholder, or would like to learn more about the investigation and your legal rights, contact Girard Gibbs securities attorney Adam Polk at (415) 981-4800.