Sears latest retailer to lose bank funding

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Sears retools into five units
Sears retools into five units

Sears Holdings Corp. has joined the list of retailers receiving bad news from the financial community.

In a filing with the Securities and Exchange Commission on Friday, Sears revealed that the Bank of America had advised the multichannel merchant it would not renew an existing letter of credit agreement under the current terms.

The 364-day secured facility with a commitment of up to $1 billion is scheduled to end in July. Since Sears is currently using a five-year revolving credit facility for substantially all of its letter of credit needs, the retailer said it does not expect to see any effect from the termination of the Bank of America facility. Sears and other retailers typically use letters of credit for their international purchasing requirements.

Sears said it is currently evaluating whether or not it will replace the current letter of credit agreement.

Last week, Talbots said that its existing $135 million letter of credit facility with HSBC would be reduced in increments and would not be renewed after August 8. In addition, another letter of credit for $130 million was not replaced.

In response, Talbots negotiated revised payment terms with its major vendors and expects the need for credit to be significantly reduced. In a special conference call with analysts on Friday to address the analyst community's response to the news, several analysts expressed their surprise over the actions of banks in regard to regards to retailers.

Lillian Vernon and RedEnvelope have also recently received the cold shoulder from the financial industry.

Late last month, RedEnvelope said Wells Fargo Retail Finance LLC would no longer provide it with the ability to draw on its credit line. On Friday, it reported that it had filed for Chapter 11 bankruptcy protection and entered into an agreement with Creative Catalogs Corp. to purchase all of RedEnvelope's assets.

Earlier this year, cataloger Lillian Vernon was informed by private investment firm and owner Sun Capital that it would no longer fund the company. Soon after, Lillian Vernon filed for Chapter 11 bankruptcy protection and was sold to Taylor Corp. at auction earlier this month.


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