Fitch downgrades Sears ratings after news of distressed debt exchange

Fitch Ratings downgraded Sears Holdings Corp.'s ratings to C from CC, after the company announced a distressed debt exchange. The company said it has commenced an exchange various tranches of debt held by Sears and its Kmart business. The news comes after the department store chain said in early January that it is in talks with certain lenders to amend the terms on more than $1 billion of non-first-lien debt, to reduce the interest expense and extend maturities. The exchange involves pay-in-kind notes, that allow the company to make interest payments with more debt. "Fitch views these exchanges as a distressed debt exchange (DDE), given extension of maturity date and the change in interest from cash-pay basis to PIK, and assumes that the collateral base for the secured debt will remain unchanged post the exchange," said the rating agency. Sears most active bonds, the 6.625% notes that mature in October of 2018, fell about 1 point to trade at 83.05 cents on the dollar, to yield 35.073%, according to MarketAxess. Shares were down 1.5% and have lost 64% in the last 12 months, while the S&P 500 has gained 25%.

Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news.