Sears 2008 Annual Report Download - page 66

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. 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 remaining under the Credit Agreement. As of
February 2, 2008, we had $974 million of letters of credit outstanding under the Credit Agreement with
$3.0 billion of availability remaining under the Credit Agreement. The $435 billion 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 outstanding balance 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 of Lehman Brothers 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 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 January 31, 2009 and February 2, 2008, $12 million and $29 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
“OSH LLC Facility”), which includes a $25 million letter of credit sublimit. The OSH LLC Facility was
subsequently amended in December 2006 to expire in December 2011. The OSH 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 OSH LLC Facility is determined pursuant to a borrowing base formula based on
inventory and account and credit card receivables, subject to certain limitations. As of January 31, 2009, there
were no borrowings outstanding under the OSH LLC Facility and $0.4 million in outstanding letters of credit. 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.
Wholly-owned Insurance Subsidiary and Inter-company Notes
As noted in Note 1, we have numerous types of insurable risks, including workers’ compensation, product
and general liability, automobile, warranty, and asbestos and environmental claims. Also, as discussed in Note 1,
we sell extended service contracts to our customers. The associated risks are managed through our wholly-owned
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