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Subject:  Re: Sears Date:  12/22/2011  9:34 AM
Author:  DrtThrwingMonkey Number:  8698 of 25605

Small correction: I added 11.1 property and .7 receivables to get 11.6, which is obviously not quite right, so the question is whether 11.3 (not 11.1) of assets would cover 8.5 in liabilities.

I kept hearing about how valuable all the real estate was too a few years back and how that put a floor under the price. It was around $130 then down from $190. Just goes to show how far wrong such assumptions can be in extremis

Yeah, well it doesn't show that the assumption of real estate value was wrong, but it's true that that doesn't necessarily put a floor under the stock value. Which is good, because that gives you and me a chance to get those assets for less than they're worth.

I would agree that Lampert is unlikely to declare sudden BK . An orderly liquidation or downsizing seems more probable. Apparently Sears Canada remains pretty good. Maybe just shift all the business North?

The Canadian business is not doing as well as it was. Sears Canada trades separately (8% of the company is not owned by SHLD), SCC on the Toronto exchange, and is down from $20 to $12 in the last year, which is probably a big part of why SHLD is down so much. It is probably in run-off mode like the US operations, not fast enough to call it liquidation, but definitely downsizing, as you say.

The bonds look interesting

I would be interested to hear why you think the bonds are better than the equity. My thought is that the equity is what is more exciting, principally because Lampert is a disciplined capital allocator and is still aggressively reducing share counts, and at today's prices he can leverage this bet significantly more. At some point, a small discount to value can end up being an outsized return, if (I should put that in bold) things work out, which you don't get with the bonds. If the whole thing collapses, on the other hand, there is some risk that the property actually doesn't cover the obligations, and although the bond owner obviously gets first dibs, I'm not sure you're getting enough compensation for that risk, when your bet gives you no participation in the big payoff that comes with the upside scenario.

What bonds in particular are you looking at, and what is the yield?

Bond novice
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