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ESL Cuts Back Loans to Sears

Edward Lampert’s firm has invested millions in retailer

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ESL Partners LP (Greenwich, Conn.), the investment firm founded by Edward Lampert, has announced it will pull back on the lending it provides for Sears Holdings Corp. (Hoffman Estates, Ill.), the retail organization of which Lampert is ceo.

As Bloomberg News reported, ESL has been providing Sears with several million dollars in short-term commercial paper to fund day-to-day operations since 2010.

In fiscal 2012, which ended Jan. 28, 2012, ESL held $285 million of Sears commercial paper, the largest portion owned by the fund over five years. Lampert reportedly held $169 million of that himself.

Matt McGinley, managing director at securities researcher International Strategy & Investment Group(New York), told Bloomberg that the pullback on lending may be a warning flag that Lampert wants to lessen his exposure or is under pressure to fund redemptions from ESL.

“If he has billions of dollars of his own net worth tied up in Sears, and if he’s reducing the exposure, that’s not necessarily a good thing,” said McGinley, who has a “sell” rating on the retailer’s stock.

Bloomberg reported that if operations don’t improve for the ailing retailer, or it doesn’t obtain additional financing, Sears could burn through its available cash in less than nine months.

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“[Sears’] liquidity picture overall has not improved over the course of the past several years, and it hasn’t improved because the core operations of Sears are an absolute disaster,” McGinley said. “For the investors who still use the investment thesis that Eddie Lampert is a smart guy, well, Eddie Lampert is a smart guy, and guess what, he’s reducing his exposure to Sears.”

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