Once upon a time, Sears was the undisputed king of American retailers, but in 2017 the company’s proud history seemed to be approaching its end. In its 10-K filing that year, Sears acknowledged that “our historical operating results indicate substantial doubt exists related to the Company’s ability to continue as a going concern.”* From 2010 to 2017, the number of Sears retail locations shrank from roughly 3,500 to barely 600, and in 2017 the company lost more than $2 billion. Amidst the free fall in Sears’ performance, the company decided to enter into a sale-leaseback transaction in 2014 with Seritage Growth Properties, a real estate investment trust (REIT) created specifically to purchase Sears physical stores and lease them back to the company. Under the agreement that governed the sale-leaseback deal, Seritage retained the right to close some Sears locations, redevelop them, and lease them to other tenants. The deal appealed to Sears because it provided the company with a much-needed cash infusion of $2.7 billion. For Seritage, the agreement offered a stream of rental revenues, either from Sears or from other retailers who might occupy the spaces that Sears vacated. The terms of the arrangement were so favorable to Seritage that legendary investor Warren Buffett announced that he had purchased an 8% stake in Seritage in December 2015. News of Buffett’s investment boosted Seritage’s stock price by almost 17% in a single day, and the REIT’s shares rose another 38% over the subsequent 4 months. In early 2016, it seemed that Warren Buffett had once again made a savvy investment. However, the cash infusion that Sears received from Seritage proved insufficient to revive the company. Sears closed another 20 stores in June 2017, and the company’s Canadian arm filed for bankruptcy that same month. Unfortunately for Seritage, Sears’ woes came during a major downturn for brick-and-mortar retailers facing intense competition from Amazon and other online retailers. More than 300 retailers went under in the first half of 2017, making it more difficult for Seritage to lease the spaces that Sears left behind. As Sears’ fortunes turned darker, Seritage’s stock price fell, losing 24% of its value in just over a year.

Describe the ways in which the transaction between Seritage and Sears is similar to Seritage’s buying long-term bonds from Sears.