Sears vs. Bank of America: No Big Deal

A quick read of the headlines would lead one the believe the recent credit line non-renewal between Sears Holdings (SHLD) and Bank of America (BAC) is ominous for the retailer. To the contrary, it is an example of a well-capitalized company telling a bank to take a hike.

Background (from the SEC filing by Sears):

"On April 14, 2008, Bank of America, N.A., as Issuing Bank under the Letter of Credit Agreement dated as of August 13, 2004, as amended (the "LC Agreement"), among Sears Holdings Corporation, Sears Roebuck Acceptance Corp., Sears, Roebuck and Co. and Kmart Corporation and Bank of America, N.A., advised us that it would not agree to renew the LC Agreement under its existing terms. The current term of the LC Agreement, which is a 364-day secured facility with a commitment amount of up to $1.0 billion, is scheduled to end in July 2008. At April 18, 2008, only $1.6 million in letters of credit were outstanding under the LC Agreement, which provides solely for the issuance of letters of credit and does not provide for direct borrowings. Substantially all of our outstanding letters of credit are issued under our $4.0 billion, five-year revolving credit facility (expiring March 2010), which has a $1.5 billion letter of credit sublimit (the "$4 Billion Revolver").

We have maintained the LC Agreement as a facility to enable the Company to cost-effectively issue letters of credit when surplus cash is available to collateralize the letters of credit. As we are now using our other facility (the $4.0 Billion Revolver) for substantially all our letter of credit needs, the termination of the LC Agreement is not expected to have any effect on Sears Holdings' liquidity.

No early termination penalties or fees would be incurred by us if the LC Agreement were to terminate at the end of the current term. We are evaluating whether or not we will replace the LC Agreement at this time."

So we have a $1 billion credit line that has only $1.6 million outstanding on it and a $4 billion revolving credit in place.

The real story here is that Bank of America is looking to squeeze every penny out of every loan they can to offset mortgage-related losses. It is important to note that BAC never said they would NOT renew it, they just got greedy (or desperate). Since Sears has a fantastic balance sheet and another $4 billion credit of out there, they politely told BAC where to go.

Not renewing a credit line that is not even being used is hardly a the big deal that is being made of it out.

Disclosure: Long SHLD, no position BAC

Comments

[bulrun100]

Bravo! As usual the street and the short interest look for any reason to drive this stock down.As if the worse US econony in 20 years isn't enough(in my opinion).

[WanderSF]

I'd rather own stock in BofA than Sears.

[ajhough]

BAC is well capitalized and well run. I have a position and will maintain it at this time. Countrywide will be acretive next year to the income statement. Sears is just another story and I have no position in it.

[Hal/Atlanta]

Great Bank of America!

[insane_equine]

Why deal with Sears/KMart if you can avoid it? That's a has-been outfit with zero upside. Nothing there but declining realty holdings.
Good move, BAC. Keep that money available for a better opportunity.

[MSF]

Tod,I agree with you on BOA,however,what on earth is Lampert doing.
First it is a holding company then it is a retail company now it is trying to be both and it is not working.
I think something is wrong with Lampert shareholders are sucking wind.

[MSF]

''LOSE MONEY'' WITH JIM CRAMER

[MSF]

LAMPERT YOU AIN'T NO BUFFET.

[MSF]

CRAMER SAID TO BUY SEARS ALL THE WAY UP TO $185.

STILL LAMPERT IS NOT ON HIS HALL OF SHAME.
OH THAT'S RIGHT ,,MY BUDDY PAL EDDIE LAMPERT.

IT'S A DIFFERENT WORLD TODAY,EVERYONE WAS MAKING MONEY IN THE MARKET YEARS AGO,,,NOW IT IS HARDER,,,CRAMER QUIT AND LAMPERT IS SUCKING WIND.

[MSF]

SEARS HOLDINGS IS FINSISHED.