Sears 2008 Annual Report Download - page 41

In fiscal 2005, the Finance Committee of our Board of Directors authorized the repurchase, subject to
market conditions and other factors, of up to $500 million of our outstanding indebtedness in open market or
privately negotiated transactions. The source of funds for the purchases is our cash from operations or
borrowings under the Credit Agreement. Our wholly-owned finance subsidiary, Sears Roebuck Acceptance Corp.
(“SRAC”), has repurchased $209 million of its outstanding notes, including $49 million repurchased during
fiscal 2008 and $2 million repurchased during each of fiscal 2007 and fiscal 2006, thereby reducing the unused
balance of this authorization to $291 million. We recognized a gain of $13 million on the repurchases made
during fiscal 2008.
Certain of our debt is variable rate and we therefore manage interest rate risk through the use of fixed and
variable-rate funding and interest rate derivatives. At each of January 31, 2009 and February 2, 2008, we had
interest rate derivatives with notional amounts of $120 million and nominal fair values.
Debt Ratings
The ratings of our domestic debt securities as of January 31, 2009 appear in the table below:
Moody’s
Investors
Service
Standard &
Poor’s
Ratings
Services
Fitch
Ratings
Unsecured long-term debt ................................ Ba2 BB- B+
Unsecured commercial paper ............................. NP B-2 B
Credit Agreement
We have a $4.0 billion, five-year 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. The Credit Agreement does not contain provisions that would restrict
borrowings or letter of credit issuances based on material adverse changes or credit ratings. We expect to
renegotiate and extend our credit facility during fiscal 2009 at a capacity more in line with our historical
borrowing practices.
As of January 31, 2009, we had $435 million of borrowings and $968 million of letters of credit outstanding
under the Credit Agreement with $2.6 billion of availability. The $435 million in borrowings, borrowed in
January 2009, are classified within short-term borrowings on our consolidated balance sheet as of January 31,
2009 as we expect to repay the entire $435 million of borrowings within the next twelve months. The majority of
the letters of credit outstanding under the Credit Agreement are used to provide collateral for our insurance
programs.
Our $4.0 billion Credit Agreement is funded by a syndicate of financial institutions, including an affiliate of
Lehman Brothers. This affiliate has a $207 million total commitment in the $4 billion revolving credit facility,
but since September 17, 2008 has not funded its proportionate share of our borrowings under the facility.
Excluding this portion, our availability under the agreement is $2.4 billion.
Cash Collateral
We also post cash collateral for certain domestic self-insurance programs which we continue to classify 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 January 31, 2009, we had $12 million posted as collateral for self-insurance programs.
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