Bench Walk to back Sears insolvency litigation

Counsel for the official committee of unsecured creditors of Sears Holdings is seeking court approval of a US $35 litigation funding facility with Bench Walk Advisors.

Sears Holdings, the parent company of the iconic Sears retail brand, filed for Chapter 11 bankruptcy protection in October 2018.

While under creditor protection, litigation was commenced by a restructuring subcommittee seeking over $2 billion in damages arising from certain pre-filing related party transactions. These transactions included:

  • the 2014 spin-off of the Lands’ End brand;

  • the 2015 issuance of subscription rights to Sears Holdings shareholders to purchase shares of Seritage Growth Properties, Inc. at a specified price and subsequent sale of 235 properties and certain joint venture interests to Seritage by certain debtors; and

  • the extension of financing to Sears Holdings by certain related-parties from 2016 through 2018 and subsequent receipt by those related-parties of certain interest payments and fees related to the financings.

$25 million was set aside to cover the initial costs of the litigation, but these funds are now near exhaustion.

In order to continue in the pursuit of the claims, a competitive process was initiated to secure additional funding. Ten initial institutions were contacted regarding the funding opportunity. These institutions included both traditional litigation financers and investment managers. Of the ten parties solicited, eight signed confidentiality agreements.

Three parties made proposals for funding, one of which immediately was deemed non-actionable given highly unfavourable terms to existing creditors. The remaining two proposals—from Bench Walk and another potential funder —were deemed potentially actionable. Accordingly, several rounds of hard-fought and arm’s-length negotiations ensued with each of Bench Walk and the other funder, with significant improvements to the terms of each party’s proposed financing in each round.

Ultimately, Bench Walk’s proposal was deemed superior, and Akin Gump, in its capacity as counsel for the official committee of unsecured creditors, is now seeking to have the litigation funding agreement approved by the bankruptcy court.