University of Tennessee, Knoxville TRACE: Tennessee Research and Creative Exchange Chapter 11 Bankruptcy Case Studies College of Law Student Work 2019 Sear's Bankruptcy: From Roebuck to No Bucks Drew Hove Taylor Smith Bei Yang Follow this and additional works at: https://trace.tennessee.edu/utk_studlawbankruptcy Recommended Citation Hove, Drew; Smith, Taylor; and Yang, Bei, "Sear's Bankruptcy: From Roebuck to No Bucks" (2019). Chapter 11 Bankruptcy Case Studies. https://trace.tennessee.edu/utk_studlawbankruptcy/57 This Article is brought to you for free and open access by the College of Law Student Work at TRACE: Tennessee Research and Creative Exchange. It has been accepted for inclusion in Chapter 11 Bankruptcy Case Studies by an authorized administrator of TRACE: Tennessee Research and Creative Exchange. For more information, please contact [email protected]. SEARS’S BANKRUPTCY: FROM ROEBUCK TO NO BUCKS Photo: Mike Segar – Reuters BY: DREW HOVE, TAYLOR SMITH & BEI YANG THE UNIVERSITY OF TENNESSEE COLLEGE OF LAW TABLE OF CONTENTS TABLE OF CONTENTS .................................................................................................................................................... 2 CAST OF PLAYERS ....................................................................................................................................................... 5 I. INTRODUCTION .................................................................................................................................................... 7 II. BACKGROUND.................................................................................................................................................... 8 A. FOUNDING .............................................................................................................................................................. 8 B. EXPANSION .............................................................................................................................................................. 9 C. TURN OF THE CENTURY: THE 2000S...................................................................................................................... 10 III. WHAT LED TO CHAPTER 11 .......................................................................................................................... 12 A. PREPETITION CORPORATE STRUCTURE ................................................................................................................. 12 B. WHY THE DECLINING REVENUES? ........................................................................................................................ 14 C. CASH FLOW AND LIQUIDITY ISSUES ...................................................................................................................... 17 D. PREPETITION CAPITAL STRUCTURE ...................................................................................................................... 19 E. LIST OF CREDITORS HOLDING THE 20 LARGEST UNSECURED CLAIMS ................................................................. 24 F. LIST OF CREDITORS HOLDING THE 5 LARGEST SECURED CLAIMS ........................................................................ 27 IV. FIRST DAY MOTIONS ....................................................................................................................................... 29 A. MOTIONS AND ORDERS THAT FACILITATE ADMINISTRATION OF THE ESTATE........................................................ 30 1. VOLUNTARY PETITIONS & MOTION FOR JOINT ADMINISTRATION OF CHAPTER 11 CASES.................................... 30 2. CASE MANAGEMENT PROCEDURES ....................................................................................................................... 31 3. MOTION FOR EXTENDING TIME TO FILE SCHEDULES & STATEMENTS .................................................................. 32 4. MOTION FOR ORDER WAIVING REQUIREMENTS REGARDING EQUITY HOLDERS ................................................... 33 5. CASH MANAGEMENT MOTION ............................................................................................................................... 35 B. ORDERS THAT SMOOTH DAY-TO-DAY OPERATIONS .............................................................................................. 37 1. WAGES & BENEFITS MOTION ................................................................................................................................ 37 2. TAXES & FEES MOTION ........................................................................................................................................ 39 3. THE INSURANCE MOTION ...................................................................................................................................... 39 C. SUBSTANTIVE MOTIONS ......................................................................................................................................... 40 1. CRITICAL VENDORS MOTION ................................................................................................................................ 40 2. LIENHOLDERS’ MOTION ........................................................................................................................................ 45 3. CUSTOMER PROGRAMS MOTION ........................................................................................................................... 48 4. TRUST FUNDS MOTION ......................................................................................................................................... 49 5. CONSOLIDATED NET OPERATING LOSS CARRYFORWARDS MOTION ..................................................................... 49 6. THE STORE CLOSING PROCEDURES MOTION ........................................................................................................ 52 7. THE LEASE REJECTION PROCEDURES MOTION ..................................................................................................... 54 8. THE OMNIBUS LEASE REJECTION MOTION ........................................................................................................... 55 2 V. APPLICATIONS FOR EMPLOYMENT.................................................................................................................... 58 VI. CREDITORS COMMITTEE.................................................................................................................................. 59 VII. DIP FINANCING ............................................................................................................................................... 60 A. THE DIP ASSET BASED LENDING FACILITY .......................................................................................................... 61 1. 364(C) ................................................................................................................................................................... 61 2. 364(D) .................................................................................................................................................................. 63 B. ROLL UP ................................................................................................................................................................ 65 C. CARVE OUT ........................................................................................................................................................... 66 D. JUNIOR DIP FINANCING ....................................................................................................................................... 67 E. OBJECTIONS TO SEARS’S DIP MOTION ................................................................................................................. 68 F. FIRST INTERIM ORDER .......................................................................................................................................... 70 G. INTERIM JUNIOR DIP ORDER ............................................................................................................................... 71 H. FINAL DIP ABL FACILITY ORDER ........................................................................................................................ 72 I. FINAL JUNIOR DIP ORDER .................................................................................................................................... 74 VIII. THE 363 SALE ................................................................................................................................................ 74 A. SEARS HOME IMPROVEMENT BUSINESS SALE ........................................................................................................ 75 1. OBJECTIONS .......................................................................................................................................................... 76 2. SEAR’S RESPONSE ................................................................................................................................................. 78 3. ORDERS ................................................................................................................................................................. 79 4. FAILURE OF THE SHIP TRANSACTION ................................................................................................................... 79 5. DISPUTE & RESOLUTION ......................................................................................................................................