Sears Holdings Corporation (NASDAQ: SHLD) announced today that it has closed a transaction with the private equity fund of Ares Management LLC in connection with Ares' previously announced agreement to invest in Orchard Supply Hardware Stores Corporation.
Ares has invested $58.7 million in cash for 19.9 percent of the voting stock in Orchard Supply Hardware and a three-year option to purchase, for $126.8 million, an additional 30.2 percent of that company. Orchard Supply Hardware or its subsidiaries also entered into arrangements for $250 million in financing, consisting of a $130 million senior secured revolving credit facility and a $120 million commercial mortgage-backed loan. Orchard Supply Hardware has drawn down approximately $56 million of the revolving credit facility.
In connection with the investment by Ares and a dividend paid to Sears, Roebuck and Co. by Orchard Supply Hardware, Sears Holdings received $225.5 million in cash and a $230 million note from Orchard Supply Hardware that bears interest initially at 10%, increasing over time to a maximum of 12 1/2 %. Orchard Supply Hardware expects to refinance the note when market conditions improve and provide it with an appropriate financing rate. Payment of a portion of the dividend to Sears with a note was an alternative contemplated as part of the original negotiations with Ares to ensure that Orchard Supply Hardware would not be dependent on conditions in the high yield debt market.
"We look forward to continuing to work constructively with Ares and the management of Orchard Supply Hardware," said William C. Crowley, executive vice president and chief financial and administrative officer of Sears Holdings. "From Sears Holdings' perspective we welcome the opportunity to invest our cash at these rates, and as a shareholder in Orchard Supply Hardware, we value the flexibility this arrangement provides for Orchard Supply Hardware to achieve appropriately attractive financing. Sears Holdings will continue to work to apply its capital in creative and value creating ways."
David B. Kaplan, Senior Partner of Ares Management, said, "We are delighted to partner with Sears and the management team of Orchard Supply Hardware in this transaction, which provides the business with both capital and sponsorship. We all share the collective vision that Orchard Supply Hardware is an exciting retail concept with strong growth prospects and we look forward to applying our experience in retail and consumer products to assist the company in its expansion plans."
About Orchard Supply Hardware
Orchard Supply Hardware, which is headquartered in San Jose, California, is a leading chain of 84 hardware and garden retail stores located throughout California. Orchard Supply has a rich heritage, having started in 1931 as a farmers' cooperative in Santa Clara Valley offering supplies to local growers. For more information about Orchard Supply Hardware, visit the company's Web site at http://www.osh.com/ .
About Sears Holdings
Sears Holdings Corporation is the nation's third largest broadline retailer, with approximately $55 billion in annual revenues, and with approximately 3,900 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, home electronics and automotive repair and maintenance. Key proprietary brands include Kenmore, Craftsman and DieHard, and a broad apparel offering, including such well-known labels as Lands' End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands. It also has Martha Stewart Everyday products, which are offered exclusively in the U.S. by Kmart and in Canada by Sears Canada. For more information, visit Sears Holdings' website at http://www.searshc.com/ .
About Ares Management
Ares Management LLC ("Ares") is an independent Los Angeles based investment firm with over 90 employees and approximately $7.7 billion of committed capital under management. Founded in 1997, Ares specializes in originating and managing assets in both the private equity and leveraged finance markets. Ares' conducts its private equity activities through the Ares Corporate Opportunities Fund, L.P. ("ACOF"). ACOF focuses on injecting flexible, long-term equity capital into middle market companies to position them for growth. Ares' leveraged finance activities include the acquisition and management of bank loans, high yield bonds, mezzanine and special situation investments, which are held in a variety of investment vehicles.
SOURCE: Sears Holdings Corporation
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