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Rating Action:

Moody's downgrades Sears Holdings Corporate Family Rating to Caa1

Global Credit Research - 10 Jan 2014

New York, January 10, 2014 -- Moody's Investors Service today downgraded Sears Holdings ("Sears") Corporate Family Rating to Caa1 from B3. Actions on other rated debt instruments are detailed below. The rating outlook is stable.

The downgrade reflects the accelerating negative performance of Sears' domestic business with comparable sales falling 7.4% for the quarter to date ending January 6th, 2014 compared to the prior year. The company now expects domestic Adjusted EBITDA to decline to a range of ($80 million) to $20 million for the fourth fiscal quarter, compared with $365 million in the year prior period. For the full year, Sears expects domestic Adjusted EBITDA loss between $(308) million and $(408) million, as compared to $557 million last year. Moody's expects full year cash burn (after capital spending, interest and pension funding) to be around $1.2 billion in 2013 and we expect Sears' cash burn to remain well above $1 billion in 2014. "Operating performance for fiscal 2013 is meaningfully weaker than our previous expectations, and we expect negative trends in performance to persist into 2014" said Moody's Vice President Scott Tuhy. He added "While Sears noted improved engagement metrics for its "Shop Your Way" Rewards program, Moody's remains uncertain when these improved engagement metrics will lead to stabilization of operating performance."

The following ratings were downgraded:

Sears Holdings Corporation

Corporate Family Rating to Caa1 from B3

Probability of Default Rating to Caa1-PD from B3-PD

Issuer Rating to Caa1 from B3

$1.0 billion Senior Secured First Lien Term Loan due 2018 to B1 (LGD 2, 24% from Ba3 (LGD 2,24%)

Senior Secured Notes (2nd lien) due 2018 to Caa1 (LGD 4, 57%) from B3 (LGD 4, 54%)

Sears Roebuck & Co

Issuer Rating to Caa1 from B3

The following ratings were affirmed and LGD assessments amended:

Sears Holdings Corporation

Speculative Grade Liquidity rating at SGL-2

Sears Roebuck Acceptance Corporation

Senior Unsecured Notes at Caa2 (LGD 5, 83% from LGD 5, 82%)

Commercial Paper at Not Prime

RATINGS RATIONALE

Sears' Caa1 Corporate Family Rating reflects the company's significant weakness in operating performance evidenced by its large operating losses and its sizable cash burn after interest, capital expenditures, and required domestic pension funding contributions. The rating also considers our view that the viability of Kmart (which represented around 41% of domestic sales in its latest fiscal year), is uncertain given its continued challenges as evidenced by its meaningful operating losses and market share erosion. The company continues to also see meaningful negative trends at its Sears Domestic business, with falling sales across multiple key product categories in the latest quarter. The Caa1 rating considers the company's good liquidity position, primarily reflecting the company's unencumbered real estate, its ownership of well known consumer brands such as Lands' End, Kenmore and Craftsman, and the value of its 51% interest in Sears Canada. Sears also has $1.0 billion of cash and $2.3 billion in availability under its revolving credit facilities ($1.8 billion under its domestic facility and $0.5 billion under the Sears Canada facility, prior to taking into consideration possible reserves) as of January 4th, 2014. The ratings also reflect the lack of any near dated debt maturities until the April 2016 maturity of its domestic asset based revolving credit facility and the 2018 maturity of its senior secured term loan and 2nd lien notes.

The stable rating outlook considers the company's still meaningful level of unencumbered assets and its access to its domestic asset based revolving credit facility (availability of $1.8 billion under its domestic facility as of January 4, 2014). The company's domestic credit facility also permits it to issue up to an additional $760 million in second lien indebtedness. The company has shown the ability to realize asset values to improve liquidity, such as through the sale of real estate and dividends received from 51% owned Sears Canada. We expect the company will continue to look to monetize assets as necessary to fund its continued cash burn.

Ratings could be upgraded if the company demonstrated stabilization of sales and improved operating margins, evidencing successful results of its efforts to transform its business. Ratings could be upgraded if cash flows approaches break-even levels and interest coverage (EBITDA-Cap Ex to Interest) approaches 1 times, while maintaining a good overall liquidity position.

Ratings could be downgraded if the company's liquidity were to become more constrained, the company's unencumbered asset base were to erode, or the probability of default were to otherwise increase.

Sears Holdings Corporation ("Sears") is the parent company of Kmart Corporation and Sears, Roebuck and Co. The company also owns a 51% stake in Sears Canada. LTM revenues are approximately $38 billion. As of November 2, 2013 the company operated over 2,000 Sears and Kmart stores in the United Sates and, through its 51% owned consolidated subsidiary Sears Canada, 456 stores in Canada.

The principal methodology used in this rating was the Global Retail Industry published in June 2011. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Scott Tuhy
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Janice Ann Hofferber
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades Sears Holdings Corporate Family Rating to Caa1
No Related Data.
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