Kmart's bank debt climbed up after the company released its plan of reorganization providing pre-petition lenders holding $1.08 billion in claims with roughly 40 cents on the dollar for their commitments. The bank debt was said to have traded in the 36 context, before ticking up to the 37-39 range, with a few pieces changing hands.
According to the bankruptcy documents, the plan represents a "compromise and settlement" regarding lender claims to guarantees provided by certain Kmart affiliates. The plan calls for the lenders to receive cash in lieu of equity in the reorganized company. A large portion of the cash distribution to the bank lenders will be provided by an investment of $140 million by ESL Investments and Third Avenue Trust. "If ESL wasn't investing, the company would have to come up with the whole $280 million," said Ron Hutchison, Kmart's chief restructuring officer, explaining the critical nature of the cash injection.
In addition, as a lender with roughly $380 million in bank debt claims, ESL would have been entitled to about $153 million in cash. ESL has agreed, however, to forego its cash allotment, essentially using the amount to buy additional equity in the reorganized company. ESL has further pledged to provide an additional $60 million through an unsecured note if Kmart needs the liquidity.
A court date is set for Feb. 25. At this time, the judge will make a determination about whether or not the plan is in the best interests of the parties. "We believe that we have the general support of all the parties," said Hutchison. Kmart officials are trying to iron out a couple of minor details to the plan but all the major terms are set in place, he added. In addition, the company would also like to have written statements from the creditors supporting the plan to file with the disclosure statement on or before the court date.