Sears 2011 Annual Report Download - page 71

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
be due and payable immediately. Generally, the Company is required to offer to repurchase all outstanding Notes
at a purchase price equal to 101% of the principal amount if the borrowing base (as calculated pursuant to the
indenture) falls below the principal value of the notes plus any other indebtedness for borrowed money that is
secured by liens on the Collateral for two consecutive quarters or upon the occurrence of certain change of
control triggering events. The Company may call the Notes at a premium based on the “Treasury Rate” as
defined in the indenture, plus 50 basis points. On September 6, 2011, we completed our offer to exchange the
Notes held by nonaffiliates for a new issue of substantially identical notes registered under the Securities Act of
1933, as amended.
Sears Canada Credit Agreement
In September 2010, Sears Canada entered into a five-year, $800 million Canadian senior secured revolving
credit facility (the “Sears Canada Facility”). The Sears Canada Facility is available for Sears Canada’s general
corporate purposes and is secured by a first lien on substantially all of Sears Canada’s non-real estate assets.
Availability under the Sears Canada Facility is determined pursuant to a borrowing base formula based on
inventory and account and credit card receivables, subject to certain limitations. At January 28, 2012, we had
approximately $101 million ($101 million Canadian) of borrowings outstanding under the Sears Canada Facility,
and classified these borrowings as long-term debt as we do not intend to repay outstanding amounts within the
next 12 months. Availability under this agreement, given total outstanding borrowings and letters of credit, was
approximately $415 million ($415 million Canadian) at January 28, 2012.
Letters of Credit Facility
On January 20, 2011, we and certain of our subsidiaries entered into a letter of credit facility (the “LC
Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”), pursuant to which Wells Fargo may, on
a discretionary basis and with no commitment, agree to issue standby letters of credit upon our request in an
aggregate amount not to exceed $500 million for general corporate purposes. Any letters of credit issued under
the LC Facility are secured by a first priority lien on cash placed on deposit at Wells Fargo pursuant to a pledge
and security agreement in an amount equal to 103% of the face value of all issued and outstanding letters of
credit. The LC Facility has a term ending on January 20, 2014, unless terminated sooner pursuant to its terms.
Wells Fargo may, in its sole discretion, terminate the LC Facility at any time. At January 28, 2012, we had no
letters of credit outstanding under the facility. We may replace any letters of credit issued under our LC Facility
with letters of credit issued under the Amended Domestic Credit Agreement and as such, any cash collateral is
considered unrestricted cash.
Cash Collateral
We 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. At January 28, 2012 and January 29, 2011, $20 million and $324 million of
cash, respectively, was posted as collateral for self-insurance programs.
Wholly owned Insurance Subsidiary and Inter-company Securities
As noted in Note 1 of Notes to Consolidated Financial Statements, we have numerous types of insurable
risks, including workers’ compensation, product and general liability, automobile, warranty, and asbestos and
environmental claims. In addition, as discussed in Note 1, we sell extended service contracts to our customers.
The associated risks are managed through Holdings’ wholly owned insurance subsidiary, Sears Reinsurance
Company Ltd. (“Sears Re”), a Bermuda Class 3 insurer.
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