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Sears borrows $400 million from a hedge fund run by its CEO Lampert

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NEW YORK — Sears is taking out a $400 million secured short-term loan from a hedge fund run by CEO Edward Lampert.

The Hoffman Estates, Illinois, company, which runs Sears and Kmart stores, said in a regulatory filing that the loan is from entities affiliated with Lampert's ESL Investments Inc.

Sears shares fell more than 9 percent on Tuesday.

Credit ratings agency Fitch Ratings said Tuesday that the move was a "short-term fix" for a "much larger need" for cash. Last week, Fitch downgraded Sears' credit rating deeper into junk status citing its declining profits and no clear turnaround plan.

Lampert is Sears' biggest stockholder. He combined Sears and Kmart in 2005, about two years after he helped bring Kmart out of bankruptcy. But it has faced mounting pressure from rivals like Wal-Mart Stores.

The filing said that $200 million of the loan was funded on Monday and that another $200 million will be funded on Sept. 30.

Sears Holdings Corp. said that it plans to use the loan's proceeds for general corporate purposes.

The loan is set to mature on Dec. 31, but can be extended to Feb. 28, 2015.

Last month Sears reported a wider second-quarter loss compared with a year ago. Sears said it planned to do more cost cutting and close more stores than it previously announced to help turn the company around. It has also been reducing inventory and selling off assets to try to return to profitability.

Its shares dropped $3.15, or 9.4 percent, to close at $30.37. They have fallen 39 percent over the past year.

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