Orchard Supply Hardware Stores Corp. (OSH), the chain spun off by Eddie Lampert’s Sears Holdings Corp. (SHLD) 17 months ago, is considering filing for bankruptcy as soon as next week, said people familiar with the matter.
The chain is also continuing talks with lenders on a restructuring of about $261 million in debt and capital lease obligations, said two of the people, who asked not to be identified because the process isn’t public.
Orchard Supply, based in San Jose, California, said in October it had hired Moelis & Co. to help refinance its senior secured loan. It has posted a combined loss of $132.8 million in the past two years. Lampert and his RBS Partners LP fund together hold the biggest stake in the company, with about 21 percent of the shares outstanding as of May 13, according to regulatory filings.
Several parties are competing to be the stalking horse, or minimum bidder, for the company’s assets, two people said.
Chris Newman, Orchard’s chief financial officer, didn’t return a call seeking comment.
After earlier rising as much as 36 percent, the shares closed up 3.1 percent to $3.04 yesterday in New York.
Orchard Supply and its creditors have agreed to waive loan covenant breaches since October, periodically extending negotiating deadlines to continue negotiating. The latest agreement expires June 30.
In a June 3 regulatory filing, Orchard said that restructuring efforts may not be successful and may end in bankruptcy.
Sears, based in Hoffman Estates, Illinois, bought Orchard for $415 million in 1996, attracted by the stores’ niche between mom-and-pops and superstores such as Home Depot Inc. Sears said at the time it could operate as many as 500 Orchard Supply stores.
It sold a 20 percent stake to Ares Management LLC in 2005 and spun off the remainder in December 2011.
Orchard opened its first store in San Jose in 1931 amid a two-year drought and the Great Depression as a cooperative for local farmers.
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