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Tuesday, December 9, 2014

INSIGHT-Saving Sears: Eddie Lampert's complicated dance, (NASDAQ: SHLD)

Tax rules and concerns about Sears Holdings Corp's tenuous financial condition may force CEO Eddie Lampert to do a complicated dance as he plans to spin off the retailer's best real estate into a separate trust. Last month, the troubled retailer and its chief executive disclosed plans to form a real estate investment trust (REIT) that would acquire as many as 300 Sears stores and lease them back to the retailer. This, CreditSights estimated, could help Sears raise $2.6 billion, providing a critical cash injection.But based on a Reuters analysis of the proposed REIT and interviews with commercial real estate experts, potentially large ownership stakes held by Lampert and others could conflict with U.S. tax rules designed to prevent small groups from having voting control of a REIT.Sears' financial woes might also create complications, legal experts said. Sears has lost more than $6 billion over the past four years, and some credit analysts have warned of a possible bankruptcy in the long run. Fitch Ratings, for example, warns the retailer could run out of money in 2017. Given that risk, the spinoff must be structured so it could stand up to scrutiny under federal provisions discouraging certain transfers of major assets prior to any bankruptcy.Sears declined comment. But it has said it's confident it has ample assets to fund its recovery, including a property portfolio with a book value of $5 billion. It has raised $2.2 billion in liquidity in 2014 and recently pointed to a narrower quarterly loss as a sign of better days to come.

Sears Holdings Corporation is a retailer with approximately 1,980 full-line and specialty retail stores in the United States operating through Kmart and Sears and 449 full-line and specialty retail stores in Canada operating through Sears Canada, Inc. Shares of SHLD traded higher by 4.43% or $1.456/share to $34.34. In the past year, the shares have traded as low as $22.45 and as high as $48.25. On average, 1863360 shares of SHLD exchange hands on a given day and today's volume is recorded at 559543.