What do you think the downgrade to SGL-3 will do for the Christmas season and the shipping of merchandise?
6 replies (most recent on top)
they are no out 560M on letters of credit - pre pay . That will grow and accelerate the final chapter. Suddenly key sullies just say not and it collapses like Circuit City did. The exposure for these sullplier building and shipping from Japan is approx. 8 months time
If vendors are asking for CoD store shipments will thin out significantly and noticeably. You will probably see a newsletter or Pebble post discussing the issue. Undoubtedly, people will notice so they will try to put a positive spin on it ("we are in transformation"). They might also shift the blame on "those difficult suppliers" and claim that they "refuse to work with us".
If CoD demands happen, it won't be long before Sears and Kmart's final demise, especially for bread and butter things like appliances and Craftsman tools. Sears won't be able to afford to pay for merchandise before it is shipped to their stores. It is abnormal for retailers to be on a CoD basis with its suppliers as it is normally a financially wiser move to take a line of credit and pay for the merchandise later. Just like with mortgages, loans and other types of personal credit, the retailer has to substantiate their ability to pay. Sears has not been able to do so.
What does that mean? It means if you have any money whatsoever in Sears Holdings stock sell it ASAP because things are only going to get worse for Sears Holdings!!
How would we know if vendors are asking for COD?
SGL is speculative grade liquidity. It is a guideline of which publicly traded companies are "graded" on how liquid they are (liquid meaning cash on hand plus saleable assets, but this does not necessarily mean going into bankruptcy). It is a grade mostly to satisfy creditors.
Basically, Sears' SGL-3 rating is putting creditors (which include vendors) and investors on notice. There isn't the liquidity (the ability or capacity to sell assets, like stores, intellectual property, etc.) and there isn't much cash on the books of course. $200-300 million is not a lot of money on the books for such a large company. On a scale from SGL 1-4, 4 is the worst. Sears is at SGL-3, they were at SGL-2.
We will probably see demands of CoD (cash on delivery). Usually retailers take a line of credit for inventory and pay that back months later.
A CoD basis is troubling. Got to have 100 percent of the cash up front or it's no merchandise for you. Retailers are known to go bankrupt weeks after their key suppliers demand payment up front.
What does that mean?