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Sears Said to Propose Interest Rate on $1 Billion Term Loan

Sept. 18 (Bloomberg) -- Sears Holdings Corp., the unprofitable retailer controlled by Edward Lampert, proposed the rate on a $1 billion loan it plans to use to pay down less-expensive borrowings.

The bank debt may pay interest at 4.5 percentage points to 4.75 percentage points more than the London interbank offered rate, with a 1 percent floor on the lending benchmark, according to a person with knowledge of the transaction who asked not to be identified because terms aren’t set. The term loan may be sold to investors at 99 cents on the dollar.

“Sears continues to report poor operating results, with a continued decline in same-store sales and profit erosion,” Standard & Poor’s analysts Ana Lai and David Kuntz wrote today in a report. “The success of its current strategy to transform itself into a membership driven integrated retailer is uncertain and has not made a meaningful impact on the overall consolidated results.”

The firm lowered the rating of the company’s $1.25 billion of second-lien notes to B-, six levels below investment-grade, because of the additional debt it’s seeking. S&P kept Sears’s corporate ranking at CCC+, or seven grades into junk, saying it doesn’t see a “specific default scenario” in the next 12 months.

Revolver Borrowings

Sears said earlier this week the term loan will be used to reduce borrowings under its $3.275 billion asset-based revolving credit line. The company has drawn about $1.5 billion from the revolver and has about $1.1 billion available after including letters of credit, according to data compiled by Bloomberg.

The Hoffman Estates, Illinois-based retailer pays an interest rate of 2 percentage points to 2.5 percentage points more than Libor for advances under the credit line, depending upon how much debt the company holds relative to its earnings, according to an Aug. 22 regulatory filing.

Bank of America Corp. is arranging the loan and investors are asked to let the bank know by Sept. 27 whether they will participate in the deal, the person with knowledge of the financing said.

Under a revolver, money can be borrowed again once it’s repaid; in a term loan, it can’t.

To contact the reporter on this story: Christine Idzelis in New York at cidzelis@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net

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