Sears-Kmart merger wins $3.5 billion credit promise

TROY , Mich. — Eight financial institutions have committed $3.5 billion of a $4 billion senior secured revolving credit facility currently in syndication to be used in connection with the Kmart-Sears merger. The remaining $500 million is ostensibly still under development.

The combined retail operations, under the auspices of the newly created Sears Holdings Corporation, would create the nation's third largest retailer with an estimated $55 billion in sales and initially 2,350 full-line stores and 1,100 specialty stores. The funds for the $11 billion merger will be available for five years to provide working capital, acquisitions, capital expenditures and for general corporate purposes. The credit facility will become effective upon consummation of the merger, expected by early March.

"The strong start to the syndication reflects confidence within the bank market in the financial strength of Sears Holdings Corporation, the leadership of the combined management teams and the focus on profitability provided by its chairman, Edward Lampert, whose ESL investment partnerships will be the company's largest shareholder," said James Lee, vice chairman of JPMorgan Chase, one of the joint lead arrangers. Others in that group include Citigroup and Bank of America.

Lampert is the hedge fund investor who led Kmart out of bankruptcy largely through the sell-off of the company's real estate. As Kmart's controlling shareholder and chairman, he's credited with returning the company to profitability through extensive cost-cutting and productivity improvements, even while top-line revenue improvements have remained elusive. He is also Sears' largest shareholder.

The merged companies will combine most of the two retailers' brands, including Lands' End, Martha Stewart Everyday, Joe Boxer, Kenmore and Craftsman. Lampert has indicated that the merged companies will leverage Kmart's off-mall real estate and mass-market standing with Sears' brand strength and reputation. It is also hoped the merger will propel Sears' off-mall strategy years ahead, at the same time enabling it to close underperforming Sears mall stores or Kmart units.

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