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No. of Recommendations: 5
About a year ago I sold out of my long OTC traded SSRAP notes. The ongoing operating losses moved to the point where I had lost confidence of my SRAC notes being made whole long term.

Interestingly enough, the market for SRAC notes has perked up and they now trade in the $0.65 range. The SHLD holdCo notes (due '19) trade at $0.40 (as I noted years ago, when holdCo notes traded at a premium, I felt the market was confused).

But interestingly, the '18's (which are secured, and senior to the above) were offered an exchange to extend maturity one year, and get offered some convertibles on common. This reduced the outstanding value of the '18's (which come due in <1 month) dramatically and it's now a very small/manageable amount ($134m).

So SHLD just reported their last 10-Q, and the results continue to suck, but there are some green shoots (notably, SSS turned positive in the last part of the Q, and -16% comps moved to -3-4% comps).

I have no strong feeling on SHLD common, or the myriad of junior debt anymore, but I find the probability of a filing happening within the next 4 weeks to be very very low, and the oct 15, '18 secured notes are trading at $91-92.

I think on a Ch11 filing these secured notes (along with their '19, extended versions) would likely make them trade to $0.60.

I think a filing in 4 weeks is a <2-5% probability... so upside is 10%, downside is ~35%, but chance is 95%+ of getting the upside (quick math on my estimations).

I think the nature of the trade is unlikely to attract interest (from new money) which is why it exists, I can imagine someone in need of cash harvesting it here as owning a potential BK candidate bonds going into maturity presents a psychological challenge.

I own this (recently purchased - tried to buy earlier this year at $70, but was too slow... built a stake at $91 recently), but it's small size, and only for large accounts since 2 bond minimum is $1800 position that must be a small part of portfolio.

Ben
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