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BofA declines to renew Sears letter of credit

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From Bloomberg News

Sears Holdings Corp., the retailer being reorganized by hedge fund investor Edward Lampert, said Bank of America Corp. refused to renew a $1-billion letter of credit under existing terms, sending the shares down 3.2% in after-hours trading Friday.

Losing the credit probably won’t affect Sears’ access to cash, the Hoffman Estates, Ill., company said in a regulatory filing. The retailer had $1.62 billion in cash as of Feb. 2, a 58% decline from a year earlier.

Retailers use letters of credit to assure vendors that they have money to pay for goods, and losing a bank’s backing may mean having to dip into cash reserves to pay for merchandise up front.

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Sears said it had a separate $1.5-billion letter of credit and used only $1.6 million of the Bank of America agreement, which expires in July.

Sears sales have declined the last four quarters with the drop in consumer spending as the U.S. economy hovers near a recession and credit has become more difficult to obtain.

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