US retail stalwart Sears is indebted to vendors, lenders and even customers who recently bought Kenmore fridges or Craftsman lawn mowers, latest reports have revealed.
While the company has close to $7 billion in assets, according to court filings on Monday, it also has $11.3 billion in liabilities. More than 100,000 creditors are owed money by Sears.
After Sears filed for bankruptcy on Monday those creditors will now have to get in line to fight to collect pennies in return for their investment dollars.
Landlords, many of whom will have seen the writing on the wall for Sears for years let alone months, are likely to take a major hit on unpaid rent and the job of converting and reletting the outlets in a very difficult US retail market.
Lenders funding Sears' operations and secured creditors will be at the top of the list. Those are the lenders who loaned money to Sears in return for real estate or inventory.
After Sears pays secured creditors, priority creditors will come next, including anyone who recently sold Sears goods, taxes the company owes, and back wages and benefits to employees. They will only get paid if there's enough money left after Sears pays its secured creditors.
A judge will have to sign off on any payments Sears makes during the bankruptcy process.
Unsecured vendors and service providers, shareholders, and pensioners will be left to fight over what is left. Companies that sold to Sears may not get paid back in full - or at all. Shareholders have mostly been wiped out already - the stock is down 89% this year.
The Pension Benefit Guaranty Corp, a US government pension insurer, is the company's largest unsecured creditor. The government agency claims Sears' pension plans are underfunded by about $1.5 billion. It has been negotiating with Sears for years, and the insurer believes Sears will be able to pay benefits for most of its 90,000 pensioners. The rest will be guaranteed by the agency, so pensioners won't lose out.
RPA Perspective Vendors have been shrinking their reliance on Sears in recent years, but Sears still owes millions to appliance, tool, and electronics companies.
Whirlpool, which had started in business more than a century ago selling its appliances at Sears, pulled its various brands out of Sears and Kmart stores last year. Sears accounted for only 3% of Whirlpool's sales worldwide in 2017.
Sears owes more than $23 million to Whirlpool and $18 million to refrigerator company Frigidaire. It also owes millions to Samsung and Black & Decker.
Whirlpool said on Monday that the fallout from Sears' bankruptcy would be limited.
Sears also owes billions in debt to banks, but those loans will be among the first paid back in bankruptcy. It borrowed $5 billion from banks and other lenders, including Chairman Eddie Lampert's own hedge fund ESL, which has loaned more than $1.3 billion already.
Sears has received $300 million in financing to help it stay open and pay off its debts. It said it is negotiating an additional $300 million in financing from ESL, which is the company's largest shareholder and creditor.
Although many retail experts blame Lampert for driving Sears into the ground, his secured creditor status means he won't lose his personal fortune after Sears' bankruptcy process is complete.
The company said it will continue paying employees' wages and benefits, honour member programmes, and "pay vendors and suppliers in the ordinary course for all goods and services provided on or after the filing date."
Sears said customers should expect loyalty programmes, including the Shop Your Way membership program,me and the Sears and private label credit card rewards programme to continue for now.
It also is currently honouring warranties, protection agreements and guarantees.
But the big risk for vendors and customers is that the financing Sears has secured isn't enough to sustain the business for long.
