New York private equity group leads $800M refi for Sears

A New York-based private equity group is betting big on Sears, after Edward Lampert’s multibillion-dollar takeover of the ailing retailer from bankruptcy earlier this year.

HPS Investment Partners, a former subsidiary of JPMorgan, led a group of investors in providing Sears with an $800 million refinancing package, secured by a national portfolio of Sears and Kmart stores, The Real Deal has learned.

The deal closed in April and was recently filed in public records. HPS served as the administrative agent on the loan, which was backed by “four institutional investors,” according to a letter that Sears management sent to its partners in April explaining the deal.

In February, Lampert’s hedge fund ESL Investments bid $5.2 billion to buy Sears out of Chapter 11 bankruptcy. Transform Holdco, an entity created out of that transaction, is now Sears’ parent company and was the borrower in the recent loan.

Transform will use the debt to pay down and restructure Sears’ exit financing at a more favorable rate, while also letting the company take out some liquidity from the assets it acquired from Sears, according to the letter.

The deal “demonstrates the confidence of our financial partners,” the company said in a statement.

Not everyone is happy with Lampert’s stewardship of the once-mighty retail chain.

Sears last month filed suit against Lampert, claiming he and other company officials made billions off the failing retailer as it slid into a “death spiral” that ended in bankruptcy. The suit alleges Lampert and others sold off Sears assets and pocketed the proceeds in their roles as major company stockholders, even as the company struggled to pay its bills.

Sears and Kmart had some 3,500 locations when they merged under Lampert in 2005. His successful takeover bid earlier this year included plans to sell or sublease some of the just 425 stores that remained.

The new debt is secured by 161 Sears and Kmart stores scattered across 37 states, making for a large chunk of the portfolio that JLL has been marketing for sale since December.

Ten of those locations are in Illinois, including one that is part of the Woodfield Mall in Schaumburg.

Texas had the biggest share of the portfolio, with 23 locations, followed by Michigan with 13. Florida tied Illinois with 10, while Georgia and California had eight apiece, according to a schedule of the properties recorded with the loan in Jacksonville, Florida.

HPS started out in 2007 as a JPMorgan subsidiary named Highbridge Capital Management, according to the firm’s website. The company’s real estate strategy focuses on “stabilized and transitional real estate assets,” which include a “joint venture with The Related Companies.”

The work of recording the mortgage in all 37 states fell to the New York law firm Milbank, which recently took up space in Related’s 55 Hudson Yards.