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Pension Funds

PBGC, other creditors object to Sears sale to ESL Investments

The Pension Benefit Guaranty Corp. and other unsecured creditors have asked a bankruptcy court judge to reject a proposed sale of Sears Holdings to Chairman Edward Lampert and his hedge fund ESL Investments.

In court documents filed Saturday in U.S. Bankruptcy Court in White Plains, N.Y., PBGC officials said the agency has claims of $1.74 billion for two Sears Holdings pension plans, making it the largest creditor.

When Sears filed for bankruptcy in October, the two plans were 64% funded, and the PBGC said it would cover "the vast majority" of benefits earned by participants if those plans wind up being terminated. The PBGC is seeking to terminate the plans as of Jan. 31, and will become responsible for them when Hoffman Estates, Ill.-based Sears agrees to, or a court orders, plan termination.

PBGC officials also said in October that the agency has been working with Sears for several years to improve the funding of the company's pension plans, including securing interests in some Sears brand trademark licenses. The PBGC is still investigating the amounts owed under those agreements and could lose its interests if the court approves the sale to ESL, an arrangement that "violates the bankruptcy code," the PBGC filing said.

As of Nov. 30, 2017, the most recent plan filings, Sears Holdings Pension Plan 1 had assets of $1.84 billion, and Sears Holdings Pension Plan 2 had $778.7 million in assets. Together they cover 99,000 participants. Sears froze the plans in 1996 and 2005: Benefit accruals in both Sears plans were frozen in 1996 for former Kmart participants and in 2005 for Sears participants.

The full unsecured creditors committee, including the PBGC, filed similar objections Monday. The objectives for selling Sears holdings, including 500 stores that could continue to operate, were to keep the company solvent and save up to 45,000 jobs, their filing said, "but the true intended beneficiaries" were Mr. Lampert and ESL Investments. In an earlier court filing, the creditors committee said it uncovered facts demonstrating that in addition to its retail struggles, Sears' downfall "was precipitated by years of misconduct by Lampert and ESL."

Mr. Lampert paid $35 million in exchange for Sears not objecting to his purchase through debt, and the creditors committee criticized Sears for failing to test the market for what the assets are worth. "In short, the debtors seek approval of a highly questionable transaction representing a Hail Mary for their controlling insider that … places massive risk on the debtors' unsecured creditors and leaves them with nothing but up to $35 million in cash and limited preserved causes of action," their latest filing said.

A hearing on Mr. Lampert's proposed purchase is set for Feb. 4. Paul Holmes, a spokesman for ESL Investments, declined to comment.