Sears Spinoff of Land’s End Might Be Credit Negative, Moody’s Says

Poor Sears (SHLD). First Eddie Lampert dumps a big chunk of his holdings and now Moody’s says that the potential spinoff of Land’s End, which Sears announced last Friday, could be a credit negative. Yikes!

From Moody’s:

Until such time as a final capital structure is determined as well as the extent of any cash distributions, if any, Sears Holdings may receive, the B3 rating and stable outlook are unchanged. We recognize that Sears Holdings would still retain a significant asset base post-spin including but not limited to its 51% stake in Sears Canada, meaningful real estate holdings, and the Kenmore, Craftsman, and DieHard brands. Further, Sears has no meaningful debt maturities (outside its asset-based revolver) until 2018. However given the weak operating performance of Sears Holdings, the lack of any visibility on an improvement in operations, and its sizable negative cash flow, the loss of the Land’s end assets and earnings streams will result in further weakening for creditors at this critical juncture. As such, absent a recovery in Sears operating performance beyond our current expectations — a stabilization of earnings in the second half of 2013 — we would anticipate that a spin-off of Lands’ End with limited cash proceeds would likely result in the rating outlook being revised to negative from stable due to the loss of value to Sears from the spin-off of the Lands’ End business. We also note that if a transaction were structured that resulted in moderate levels of proceeds, that would be a positive for near term liquidity, however, that in and of itself would not fully address our concerns if performance were to weaken in the holiday 2013 season.

Shares of Sears fell 1.8% to $46.86 today.