Sears 2012 Annual Report Download - page 73

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
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credit facility to obtain an aggregate amount of up to $1.0 billion in additional borrowing capacity. The Domestic
Credit Agreement permits aggregate second lien indebtedness of up to $2.0 billion, of which $1.2 billion in second
lien notes were outstanding at February 2, 2013, providing the Company the capacity to issue up to an additional
$760 million in second lien indebtedness. The Domestic Credit Agreement is in place as a funding source for general
corporate purposes and is an asset based revolving credit facility under which Sears Roebuck Acceptance Corp.
(“SRAC”) and Kmart Corporation are the borrowers. The Domestic Credit Agreement is secured by a first lien on
most of our domestic inventory and credit card and pharmacy receivables, and is subject to a borrowing base
formula to determine availability.
The Domestic Credit Agreement limits our ability to make restricted payments, including dividends and share
repurchases, under certain circumstances, including if availability under the credit facility, as defined, is less than
15%. It also imposes various other requirements, which take effect if availability falls below designated thresholds,
including a cash dominion requirement and a requirement that the fixed charge ratio at the last day of any quarter be
not less than 1.0 to 1.0.
At February 2, 2013 and January 28, 2012, we had $749 million and $838 million, respectively, of borrowings
and $754 million and $626 million, respectively, of letters of credit outstanding under the Domestic Credit
Agreement. As a result, our availability under the agreement was $1.8 billion at both February 2, 2013 and
January 28, 2012. The majority of the letters of credit outstanding are used to provide collateral for our insurance
programs.
Senior Secured Notes
In October 2010, we sold $1 billion aggregate principal amount of senior secured notes (the “Notes”), which
bear interest at 6 5/8% per annum and mature on October 15, 2018. Concurrent with the closing of the sale of the
Notes, the Company sold $250 million aggregate principal amount of Notes to the Company’s domestic pension
plan in a private placement. The Notes are guaranteed by certain subsidiaries of the Company and are secured by a
security interest in certain assets consisting primarily of domestic inventory and credit card receivables (the
“Collateral”). The lien that secures the Notes is junior in priority to the lien on such assets that secures obligations
under the Domestic Credit Agreement, as well as certain other first priority lien obligations. The Company used the
net proceeds of this offering to repay borrowings outstanding under a previous domestic credit agreement on the
settlement date and to fund the working capital requirements of our retail businesses, capital expenditures and for
general corporate purposes. The indenture under which the Notes were issued contains restrictive covenants that,
among other things, (1) limit the ability of the Company and certain of its domestic subsidiaries to create liens and
enter into sale and leaseback transactions and (2) limit the ability of the Company to consolidate with or merge into,
or sell other than for cash or lease all or substantially all of its assets to, another person. The indenture also provides
for certain events of default, which, if any were to occur, would permit or require the principal and accrued and
unpaid interest on all the then outstanding notes to 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 inventory and credit card receivables. Availability under the
Sears Canada Facility is determined pursuant to a borrowing base formula based on inventory and credit card
receivables, subject to certain limitations. At February 2, 2013 we had no borrowings outstanding under the Sears
Canada Facility. At January 28, 2012, we had approximately $101 million ($101 million Canadian) of borrowings
outstanding under the Sears Canada Facility. Availability under this agreement was approximately $503 million
($502 million Canadian) and $415 million ($415 million Canadian), respectively, at February 2, 2013 and