Sears gets breathing room in deals with MetLife, Cascade

Hoffman Estates-based Sears Holdings gained some breathing room in its comeback effort thanks to deals with some of the biggest names in finance.

Lenders including billionaire Bill Gates's Cascade Investment LLC agreed to give the struggling retailer more time to repay debt. And MetLife Inc. will take on pension obligations for about 51,000 retirees, Sears said Tuesday in a statement.

Once the country's largest retailer, Sears has racked up billions of dollars in red ink over the past five years amid a broader department-store slump as shoppers opt for discounters and Amazon.com. Chief Executive Officer Eddie Lampert has shut stores and raised cash by selling or spinning off assets, including the Craftsman tool brand and Lands' End clothing business.

Under one deal announced Tuesday, Sears wins more time to repay most of a $500 million secured loan facility that was to be due in two months. The company will repay just $100 million in July and extend the remainder of the loan until January, with an option to push out the maturity another six months. The lenders include Cascade and JPP, an entity tied to Lampert, who has thrown the company lifelines before.

Sears also said it will pass off $515 million in pension obligations to MetLife. That transaction will reduce volatility and expenses, helping the retailer reach its target to cut debt and pension obligations by $1.5 billion this fiscal year.

Longer life spans, and bond yields that are near historic lows, have made it harder for employers to generate the returns that they expected on funds set aside to pay retirees. J.C. Penney Co., another ailing retailer, struck a similar deal in 2015 with MetLife's rival Prudential Financial Inc.

For employers like Sears that transfer pension risks, "where it 'helps' is that they don't have to worry about their assets keeping up with the growth on the liability side," said Bloomberg Intelligence credit analyst Noel Hebert. He added that the retailer remains underfunded on overall pension obligations.

The risk-transfer deals add assets under management for insurers like MetLife and are a natural hedge to their traditional death-benefit businesses. That's because longer life expectancy makes insurance policies more profitable even while increasing costs for pensions.

"We believe our 90-plus years of experience in this market and expertise in managing transferred pension liabilities allows us to add value and helps our clients feel secure that their risks are well-managed," MetLife said in an emailed statement. Sears didn't return a message seeking comment.

- With assistance from Nick Turner