In this article, Adam Stein-Sapir of Pioneer Funding Group provides insights into the dynamics of claims trading during the Sears bankruptcy.
Article Link: https://nypost.com/2018/11/07/sears-suppliers-cautious-following-toys-r-us-bankruptcy/
Summary
The bankruptcy of Sears has led to a climate of caution among its suppliers, with some investors seeking to capitalize on the uncertainty by purchasing receivables at reduced rates. Distressed-debt purchasers, such as Cherokee Debt Acquisition, are making offers to buy receivables from Sears vendors for significantly less than the typical rate, with bids ranging from 55 to 70 cents on the dollar. These offers are for merchandise delivered shortly before Sears’ Chapter 11 filing, which would normally be paid in full. However, due to Sears’ limited financial resources and the precedent set by the Toys ‘R’ Us bankruptcy, where vendors received only 22 cents on the dollar, there is a heightened interest in these cash offers among vendors looking to mitigate risk.
- Offers for Sears receivables are being made at 55 to 70 cents on the dollar, below the usual rate of “the high 80s.”
- Sears’ financial constraints and the recent Toys ‘R’ Us bankruptcy have made vendors more cautious and open to selling their claims.
- The situation has been criticized for potentially exploiting vendors’ fears of administrative insolvency.
Q&A
What impact has the Sears bankruptcy had on its suppliers?
The Sears bankruptcy has made suppliers wary, as they face the risk of not being paid in full for their merchandise. This has led to an increased interest in selling their receivables to claims-trading firms at discounted rates to secure immediate cash and avoid potential losses.
How are claims-trading firms responding to the Sears bankruptcy?
Claims-trading firms are actively making lowball cash offers to Sears suppliers for their receivables, capitalizing on the uncertainty and fear of administrative insolvency among vendors. These firms offer immediate cash payments, albeit at rates lower than what is typically expected.
What lesson did vendors learn from the Toys ‘R’ Us bankruptcy?
The Toys ‘R’ Us bankruptcy served as a cautionary tale for vendors, demonstrating that even under Chapter 11 reorganization, they might not receive full payment for their goods. This has led to a more cautious approach among suppliers and a greater willingness to consider selling their claims to minimize risk. For more information on how to handle such situations, vendors can refer to Pioneer Funding’s guide for customers filing for bankruptcy.
