Feds keeping an eye on Sears' bid to unload Kenmore due to pension shortfall

As Sears Holdings Corp. continues its downward spiral, the retail company is in talks to sell off the Kenmore appliance brand. But federal regulators are paying careful attention, because Sears' pension shortfall could end up becoming the government's problem.

What's going on?

Over the last decade, Sears sales have declined nearly 60 percent, according to The Wall Street Journal, and its shares have plummeted from $144 to a $1.30.

Riddled with debt, the company sold 266 properties to a real estate investment trust in 2015. While bankruptcy rumors circulated last year, the firm opted to downsize instead — shutting down hundreds of Kmart and Sears stores and continuing to sell off valuable assets to stay in operation.

After trying unsuccessfully to unload the Kenmore brand for two years, Sears CEO Edward Lampert — who is also the corporation's biggest shareholder and biggest lender — has offered to purchase Kenmore through his hedge fund, ESL Investments Inc.

ESL made the offer to buy Kenmore along with other assets from Sears in April. Last week, Lambert wrote a letter to the board specifying a purchase price of $400 million. A special committee made up of four independent board members is currently reviewing the proposal. ESL hopes to have a final agreement as soon as Friday.

So what's up with the pension situation?

The United States government's Pension Benefit Guaranty Corporation holds the power to halt such a deal. The entity is responsible for overseeing the private pensions of roughly 40 million Americans, including the 100,000 Sears retirees.

According to Reuters, when Sears sold its Craftsman tool line for $900 million last year, the PBGC allowed the deal to move forward only after taking its own cut: "a $250 million payment, rights to a 15-year revenue stream stemming from new sales of the tool line, and liens on $100 million of the retailer's real estate."

Sears' pension shortfall is currently at $1.5 billion. Citing unnamed sources, Reuters reported that that PBGC is expected to take as much cash as it can from the Kenmore deal, while being careful not to bankrupt the company — knowing that the governing body could get stuck covering the shortfall down the road.

But the PBGC — which is funded through insurance premiums and assets from failed employers' pension plans — has its own funding problems. While it does not receive taxpayer dollars, its multiemployer insurance program is expected to be insolvent by 2025. The organization announced in May that the program's deficit is expected to grow to around $89.5 over the next decade.