How Sears Chairman Eddie Lampert Could Benefit from Bankruptcy

Companies that accumulate operating losses can use them to offset taxable income.

Sears' Chairman is also its biggest creditor. (Carlos Osorio/Toronto Star via Getty Images)

Sears Holding Corp.’s losses could spell a multibillion-dollar asset via tax breaks, especially for the company’s chairman and creditor, Eddie Lampert.

Operating losses on the level of Sears’ can be used to offset offset future taxable income, the Los Angeles Times reported. The rule helped Sears save $1.7 billion in taxes in 2017.

But as of Oct. 15 — the date the company filed for Chapter 11 protection — Sears estimated its losses were large enough to offset $5 billion of future income and tax credits of $900 million, both enormously valuable assets.

Lampert and his hedge fund, ESL Investments Inc., own about 49% of Sears shares and are among its biggest creditors, the Times reported. Together, the two have extended the department store $2.66 billion in loans.

Since ESL has “consistently provided financing” to Sears for the requisite minimum of 18 months under New York State law, it can essentially avoid losing the tax asset regardless of whether Sears is bought by anyone else.

“By buying up almost half the stock while lending the company more money, he (Lampert) effectively created a situation such that no one could force a change in ownership, even in Chapter 11,” head derivatives trader for Twenty-First Securities, a firm that specializes in structuring tax-efficient hedging transactions, Roy Haya, told the newspaper.

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