SHLDQ should not agree to terminate the Sears pension plans unless Sears Reinsurance can back-stop the plan.
SHLDQ should do a pension buy-out, or longevity risk transaction with Sears Reinsurance.
The pension plan is currently profitable and can be fully funded with equity from Newco, income from SHLDQ and/or assets of Sears Reinsurance.
Sometimes the largest liabilities can be transformed into the largest asset.
The pension is the largest unsecured individual debt in the Sears Holdings (OTCPK:SHLDQ) bankruptcy. The pension was currently underfunded by roughly $1.5 Billion. The PBGC in Doc 2002 has objected to the sale of “substantially all” of the assets of Sears Holdings to Transform Holdco, an entity formed by Eddie Lampert. In his Blog, Mr. Lampert reminded us that roughly $4.5 Billion had been contributed to the Pension plans since 2005; this is never mentioned in articles that bash him for the decline of the size of Sears.
A couple of weeks ago, the Pension Benefit Guaranty Corporation announced that they planned to seek to terminate the Sears Holdings pension plans. Unbeknownst to many, a mere bankruptcy filing does not terminate a pension plan. (See Questions and Answers on the PBGC website.)
The PGBC issued a statement found on their site that reads:
While underfunded pension plans often terminate during bankruptcy proceedings, a company bankruptcy filing by itself does not terminate a pension plan. However, PBGC is stepping in to become responsible for the company’s two pension plans because it is clear that Sears continuation of the plans is no longer possible. The PBGC is seeking to terminate the plans as of January 31, 2019. The agency will become responsible for the pension plans when Sears agrees to plan termination or a court orders plan termination.
On February 8, 2019, a settlement term sheet was filed and signed with the PBGC and SHLDQ. (See Document 2529.) The settlement essentially terminates the pension plan for an unsecured claim of $800 Million; they also agreed to support the Chapter 11 plan and drop administration claims against KCD.