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Item 1.01
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Entry Into a Material Definitive Agreement
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On August 1, 2017, Sears Holdings Corporation (the
“Company”), through Sears Roebuck Acceptance Corp. and Kmart Corporation (collectively, the “Borrowers”), entities wholly-owned and controlled, directly or indirectly by the Company, entered into an amendment (the
“Amendment”) to the Letter of Credit and Reimbursement Agreement dated December 28, 2016 and amended March 2, 2017 (as in effect prior to the Amendment, the “LC Facility Agreement”; the LC Facility Agreement, as amended
by the Amendment and as may be further amended, restated, modified or supplemented and in effect from time to time, the “Amended LC Facility Agreement”) providing for a secured standby letter of credit facility (the “LC
Facility”) from JPP, LLC and JPP II, LLC (collectively, the “Lenders”), with Citibank, N.A., serving as administrative agent and issuing bank (the “Issuing Bank”). Mr. Edward S. Lampert, the Company’s Chief
Executive Officer and Chairman, is the sole stockholder, chief executive officer and director of ESL Investments, Inc., which controls JPP, LLC and JPP II, LLC.
The Amendment, among other things, extends the maturity of the $271 million committed under the existing LC Facility from its original maturity date of
December 28, 2017 through December 28, 2018 and eliminates the unused portion of the facility. The Amendment also increases the pricing under the LC Facility and provides for the release of all real estate collateral that secured the
existing facility. The LC Facility is guaranteed by the same subsidiaries of the Company that guarantee the obligations under the Third Amended and Restated Credit Agreement, dated as of July 21, 2015, among the Borrowers, Bank of America,
N.A., as agent, and the lenders and other financial institutions party thereto (as amended, the “Credit Agreement”), and is secured by substantially the same collateral as the Credit Agreement. The Amended LC Facility Agreement contains a
borrowing base calculation, pursuant to which the Borrowers are required to cash collateralize the LC Facility if the aggregate obligations under the Credit Agreement and Amended LC Facility Agreement exceed the Modified Borrowing Base, as defined
in the Amended LC Facility Agreement as of the end of any calendar month. To secure their obligation to participate in letters of credit issued under the LC Facility, the Lenders are required to maintain cash collateral on deposit with the Issuing
Bank in an amount equal to 102% of the commitments under the LC Facility (the “Lender Deposit”).
The Borrowers are required to pay the Lenders
an upfront fee equal to 1.00% of the aggregate amount of the Lender Deposit. In addition, the Borrowers are required to pay a commitment fee on the average daily amount of the Lender Deposit (as such amount may be increased or decreased from time to
time), as well as certain other fees. In the event of reductions of the commitments under the LC Facility or a termination of the LC Facility prior to the six month anniversary of the effective date of the Amendment, under certain circumstances the
Borrowers will be required to pay an early reduction/termination fee equal to the commitment fee that would have accrued with respect to the reduced or terminated commitments from the date of reduction or termination until the six month anniversary.
The Amended LC Facility Agreement includes certain representations and warranties, affirmative and negative
covenants and other undertakings, which are subject to important qualifications and limitations set forth in the Amended LC Facility Agreement. The Amended LC Facility Agreement also contains certain events of default, including (subject to certain
materiality thresholds and grace periods) payment default, failure to comply with covenants, material inaccuracy of representation or warranty, and bankruptcy or insolvency proceedings. If an event of default occurs, the Lenders may terminate all or
any portion of the commitments under the LC Facility, require the Borrowers to cash collateralize the LC Facility and/or exercise any rights they might have under any of the related facility documents (including against the collateral), subject to
certain limitations.
The LC Facility permits the Lenders to syndicate or participate all or a portion of their commitments under the facility to other
lenders under certain circumstances. Citigroup Global Markets Inc. is serving as lead arranger and bookrunner for the LC Facility. The Lenders have advised the Borrowers that they expect to syndicate over 50% of their portion of the LC Facility to
one or more third parties. None of the Lenders will receive any syndication fee or compensation in connection with such syndication.
The foregoing
description of the LC Facility does not purport to be complete and is qualified in its entirety by reference to the Amended LC Facility Agreement, a copy of which is filed herewith as Exhibit 10.1 and is incorporated by reference herein.