Sears stock plummeted sharply Thursday after several reports said the retailer has stopped paying vendors for products.
Three companies that that sell products in Sears have reportedly said the retailer missed payments that were due the last few weeks. Shares of Sears fell by 30% following the reports. Sears has not released a statement related to the reports.
Many analysts said that a bankruptcy may come soon. The Sears and Kmart parent company Sears Holding is facing a deadline of Monday to make a debt payment of $134 million.
Sears’ most recent filing showed the retailer had just $193 million in cash on August 4, which is the end of its most recent fiscal quarter. Also available to Sears is $269 million from lenders according to data it released September 13.
With very little cash on hand or accessible it is very difficult for the retailer to make the $134 million payment Monday, said one analyst in the retail industry.
A business that is as big as Sears must have cash on hand to pay its biggest vendors and to buy inventory for the upcoming holiday shopping season.
In addition, it uses cash for payment to employees and other expenses. Sears pays approximately $300 million per month for basic administrative expenses that include payroll.
CEO and largest shareholder Eddie Lampert has told the Sears board it was important it restructure debt of over $5 billion it has as quickly as possible. Lampert has personally bailed the company out through loaning cash in exchange for hard assets that are debt backed like real estate.
However, Lampert took the decision not to extend a further lifeline to Sears for Monday’s payment, said a report by the Wall Street Journal earlier this week.
That would narrow the options Sears has in make the payment, said another industry analyst, adding that it appears things may come to a hard stop on Monday.
Companies filing for bankruptcy usually negotiate a special loan to fund their operations while the bankruptcy process takes place. Several reports have said Sears is in negotiations for that type of financing. However, the negotiations do not seem to be going that well.
The biggest lenders for the company have encouraged Sears to close and liquidate, said the WSJ report. Management at Sears has reportedly expressed hope in using Chapter 11 to remain in business instead of Chapter 7, which leads to an eventual closing of the business and liquidation.