Sears to Contribute $407 Million to Pension Plans

Sears Holdings Corp. has closed on a new secured loan, and a mezzanine loan, for aggregate gross proceeds of $440 million, which it said it will use to contribute to its pension plans, according to SEC filings.

The loan is secured by properties that were previously subject to a ring-fence arrangement with the Pension Benefit Guaranty Corporation (PBGC). In accordance with a November 2017 agreement with the PBGC, Sears will contribute $407 million of the proceeds into the Sears pension plans.

Sears said the move exempts the company from contributing to its pension plans for approximately two years, except for a $20 million supplemental payment due in the second quarter of 2018.  It also said it expects to pay down a substantial portion of the secured loan over the next three to six months using proceeds from the sale of the underlying properties.

The November deal provided approximately $500 million in funding for Sears’ two pension plans, which cover approximately 100,000 participants, including contributions already made by Sears since August 2017.  The agreement amended a March 2016 agreement between PBGC and Sears, under which Sears agreed to protect the assets of certain special purpose subsidiaries holding real estate and intellectual property for the benefit of its pension plans. 

The amendment allowed Sears to monetize the real estate protected in the March 2016 deal, and use the proceeds to fund the pension plans. The non-real estate related pension protections in the March 2016 agreement were unaffected by the new agreement.

As part of the March 2016 agreement, Sears agreed to protect the assets of certain special-purpose subsidiaries holding real estate and intellectual property assets, including the Craftsman brand. The sale of Craftsman required the PBGC’s consent. In exchange for granting its consent, PBGC and Sears negotiated additional funding for the plans.