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Will Myer Go The Same Way As Sears As They Teeter On The Brink?

Executives at struggling Australian department stores David Jones and Myer are watching with interest the plight of US retailer Sears who is close to bankruptcy.

As Myer fends off angry shareholders investors in the USA investors are predicting an outright liquidation of the 125-year-old Sears as it tries to work out whether they actually have a future after being beaten up by Amazon who has stripped sales and customers away from them.

Currently the Company is trying to thrash out a financing arrangement with its lenders, including Bank of America, Citigroup and Wells Fargo. What they want is A$702M in an effort to keep 300 stores open.

A Chapter 11 filing is expected by Monday Australian time.

“Nobody wants them to have to turn off the lights,” said one person familiar with the thinking of one of the banks. He added, though, that ultimately a liquidation was “probably the most likely scenario”.

Bank of America, Citigroup and Wells Fargo declined to comment.

Sears did not immediately respond.

Another of the company’s creditors was hopeful the company could continue trading through the crucial festive season. “Just because they file for bankruptcy doesn’t mean they can’t trade through Christmas.

The problem is that suppliers are reluctant to supply the big retailer with stock.

Sears bonds due to mature on Monday have lost almost 60 per cent of their value within the past two days.

The secured bonds, which are in line for a repayment ahead of some other creditors but after others, are trading at only 36 cents in the dollar, down from 80 cents on Wednesday.

John McClain, high-yield debt portfolio manager at the investment manager Diamond Hill Capital Management, said the sell-off in these bonds was a sign that “the market is anticipating a liquidation”.

About $591m in senior unsecured debt that matures next year is changing hands at only 12 cents on the dollar.

The department store chain’s equity is being valued at only $43m compared with its debt burden of about $5.6bn.

 

 

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