Sears Holdings – Court Issues Final Order Authorizing Junior Secured Term Loan Facility of $350mn from GACP Finance for Sears Roebuck Acceptance and Kmart

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December 28, 2018 – The Court hearing the Sears Holdings case issued an order approving on a final basis the Debtors’ authority to enter into a $350mn, multiple draw, junior debtor-in-possession (“DIP”) term loan (the “Junior DIP Financing”) [Docket No. 1436]. 

The Junior DIP Financing is being provided pursuant to superpriority junior lien secured DIP credit agreement (the “Junior DIP Credit Agreement”) entered into on November 29, 2018 amongst (i) SRAC and Kmart, as borrowers, (ii) Cantor Fitzgerald Securities, as agent and collateral agent and (iii) the other lenders from time to time party thereto (the “Junior DIP Lenders”). The entry into the Junior DIP Credit Agreement was approved on an interim basis (allowing interim access of up to $250mn) by the Court on November 30, 2018 [Docket No. 951]. 

As previously reported in respect of the Debtors’ requesting motion [Docket No. 872], “The Junior DIP Financing, together with the DIP ABL Financing, provides a strong and clear message to the Debtors’ vendors, customers, and employees, as well as their potential acquirers, that these Chapter 11 cases are appropriately funded….The Debtors, with the assistance of their advisors, reached out to approximately 90 parties, gauging interest and narrowing the universe of possible incremental financing structures…Additionally, the Debtors reached out to nine parties for interest in the senior DIP financing; however, no parties expressed interest or provided terms better than those under the existing DIP ABL Financing….With respect to marshalling, the DIP ABL Lenders have agreed to hold all proceeds of Prepetition Unencumbered Collateral in a cash collateral account until substantially all Prepetition ABL Collateral has been sold, transferred, or otherwise been disposed of….The Debtors decision was similarly informed by the DIP ABL Lenders willingness to consent to the Junior DIP Financing and make necessary modifications to allow this financing to be obtained.”

The key terms of the proposed Junior DIP Financing are as follows: 
  1. The Junior DIP Financing shall be provided by a consortium led by GACP Finance Co., LLC, 
  2. The available amount shall be $350 million with an interest rate of LIBOR + 11.50%,
  3.  The Junior DIP Financing shall be secured by (a) a junior lien on the Prepetition ABL Collateral, (b) a pari passu senior lien on certain unencumbered assets comprising Specified Collateral junior only to the Carve-Out, (c) a lien junior only to the Carve-Out and DIP ABL Liens on other previously unencumbered assets, and (d) a lien junior only to the Carve-Out, Other Prepetition Liens, other Senior Permitted Liens, and DIP ABL Liens on collateral with other prepetition liens. Importantly, just like the DIP ABL Facility, the Junior DIP Financing does not prime any liens without consent, 
  4. 100% of the net cash proceeds from dispositions of Prepetition Unencumbered Collateral shall (a) first fund the Winddown Account until it is funded with $200 million (the “Winddown Account Funding Condition”), (b) fund the cash collateral account in an amount sufficient to repay the DIP ABL Facility in full, and (c) upon the discharge of the DIP ABL Facility obligations, the amounts shall be held as collateral for the obligations under the Junior DIP Financing, and 
  5. Proceeds of Specified Collateral after the Winddown Account Funding Condition has been satisfied, shall be distributed pro rata to the DIP Collateral Account and Cash Collateral Account based on the $350 million commitment amount under the Junior DIP Financing and $300 million of DIP ABL Facility, subject however, to the terms and conditions of the DIP Intercreditor Agreement.

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