Sears Pension Plan Cuts Stake in Retailer’s Debt

Sears Holdings Corp.’s employee pension fund sold a portion of the $250 million in company debt that it bought more than two years ago to help fund lump-sum payments to retires.

The Sears Holdings Pension Trust, overseen by the State Street Bank and Trust Co., on Jan. 9 sold $10.25 million principal amount of Sears 6.625 percent senior secured notes, which mature in 2018, according to a paper filing last week with the U.S. Securities and Exchange Commission. The retirement plan filed to sell another $1 million of the bonds on Jan. 10, the document shows.

The Hoffman Estates, Illinois-based retailer disclosed in a September filing that it would seek to increase the funding level of its pension plan so that Sears could offer lump-sum settlements to retirees under legislation adopted last year. Sears said in that filing it would be “beneficial” to offer such payments to reduce the company’s exposure to gross pension obligations, which totaled $6.1 billion for the fiscal year ended Jan. 28, 2012.

“We have to fund those lump sums for people who elected it,” Chris Brathwaite, a Sears spokesman, said in a telephone interview. “It’s not an indicator of the investment committee’s view on the bonds.”

Billionaire Edward Lampert, who together with his hedge funds holds a 56.5 percent stake in Sears, is slated to take over as chief executive officer next month. Sears, beset by declining revenue, has been selling stores and other assets to raise cash.

Sears Loss

Sears said on Jan. 7 that it will report a net loss of as much as $360 million for the fourth quarter ended Feb. 2. The results will include a $450 million noncash charge related to pension settlements, tied to a voluntary offer to eligible employees.

The pension fund received $9.74 million from the Jan. 9 bond sale, according to the filing, suggesting that the debt was sold at a 5 percent discount to face value. The retailer’s 6.625 percent bonds traded at 95.375 cents on the dollar to yield 7.63 percent as of 4:19 p.m. today, according to data compiled by Bloomberg.

Sears issued $1 billion of the debt in 2010 after doubling the size of the offering, and said at the time that it would sell an additional $250 million of the notes to its domestic pension plan. The notes were priced to yield 451 basis points, or 4.51 percentage points, more than similar-maturity Treasuries.

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