Sears 2007 Annual Report Download - page 74

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SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Credit Agreement
We have a $4.0 billion, five-year credit agreement (the “Credit Agreement”) in place as a funding source for
general corporate purposes, which includes a $1.5 billion letter of credit sublimit. The Credit Agreement, which
has an expiration date of March 2010, is a revolving credit facility under which SRAC and Kmart Corporation
are the borrowers. The Credit Agreement is guaranteed by Holdings and certain of our direct and indirect
subsidiaries and is secured by a first lien on our domestic inventory, credit card accounts receivable and the
proceeds thereof. Availability under the Credit Agreement is determined pursuant to a borrowing base formula,
based on domestic inventory levels, subject to certain limitations. As of February 2, 2008 and February 3, 2007,
we had $974 million and $196 million of letters of credit outstanding under the Credit Agreement, respectively,
with $3.0 billion and $3.8 billion, respectively, of availability remaining under the Credit Agreement. During
fiscal 2007, maximum direct borrowings outstanding under the Credit Agreement were $675 million, which were
repaid before the fiscal year end. There were no direct borrowings under the facility during fiscal 2006. The
Credit Agreement does not contain provisions that would restrict borrowings or letter of credit issuances based
on material adverse changes or credit ratings.
Letter of Credit Agreement
We also have a letter of credit agreement (the “LC Agreement”) with a commitment amount of up to
$1.0 billion. The LC Agreement, which is renewable annually upon agreement of the parties, is next up for
renewal in July 2008. There are no provisions in the LC Agreement that would restrict issuances based on credit
ratings, but issuances could be restricted under certain circumstances based on a material adverse change. Under
the terms of the LC Agreement, we have the ability to post cash, inventory or other letters of credit, including
letters of credit issued under the Credit Agreement, as collateral. However, the Credit Agreement prohibits us
from using inventory as collateral under the LC Agreement. The cash collateral account is subject to a pledge and
security agreement pursuant to which if we elect to post cash collateral, we must maintain cash in an amount
equal to 100.5% of the face value of letters of credit outstanding. As of February 2, 2008 and February 3, 2007,
there were $741 million and $686 million of letters of credit outstanding, respectively, under the LC Agreement.
The letters of credit outstanding as of February 2, 2008 were collateralized by letters of credit issued under the
$4.0 billion Credit Agreement. We did not have any cash posted as collateral under the LC Agreement as of
February 2, 2008. We had $690 million of cash posted as collateral under the LC Agreement as of February 3,
2007.
Cash Collateral
We also post cash collateral for certain self-insurance programs. We continue to classify the cash collateral
posted for self-insurance programs as cash and cash equivalents due to our ability to substitute letters of credit for
the cash at any time at our discretion. As of February 2, 2008 and February 3, 2007, $29 million and $32 million
of cash, respectively, was posted as collateral for self-insurance programs.
Orchard Supply Hardware LLC (“LLC”) Credit Agreement
In November 2005, LLC entered into a five-year, $130 million senior secured revolving credit facility (the
“LLC Facility”), which includes a $25 million letter of credit sublimit. The LLC Facility is available for LLC’s
general corporate purposes and is secured by a first lien on substantially all of LLC’s non-real estate assets.
Availability under the LLC Facility is determined pursuant to a borrowing base formula based on inventory and
accounts and credit card accounts receivable, subject to certain limitations. As of February 2, 2008, there were
$17 million in borrowings outstanding under the OSH LLC Facility and $1 million in outstanding letters of
credit. As of February 3, 2007, $36 million was outstanding under the LLC Facility consisting of $34 million in
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