Is Sears Holdings Corp (SHLD) Borrowing Money from Its CEO’s Hedge Fund a Good Idea?

Edward Lampert‘s fund, ESL Investments, has disclosed in a new filing with the Securities and Exchange Commission that it has entered into a short term loan agreement with three subsidiaries of Sears Holdings Corp (NASDAQ:SHLD). Under the terms of the agreement, ESL provides a loan to Sears worth $400 million, out of which $200 million were already provided on September 15, and the other $200 million will be offered on September 30.

The loan will have an annual base interest rate of 5% and is due December 31, 2014. Moreover, the loan is secured by mortages on certain properties of Sears Holdings Corp (NASDAQ:SHLD) and its subsidiaries. The interesting part about this loan, however, is that both Sears Holding and ESL are controlled by the same person, Edward Lampert, who is the chairman and CEO of Sears and the founder, chairman and CEO of ESL Investments.

Sears Holdings Corp (NASDAQ:SHLD) is struggling from the financial point. The company has reported a net loff of $573 million or $5.39 per share for the second quarter of 2013, which is significantly higher than the loss of $194 million or $1.83 per share the company reported for the same period of last year. The company’s stock has declined by around 40% since the beginning of the year.

With the company’s weak financial situation, Mr. Lampert’s involvement in this loan program might spark some controversy. Mr. Lampert holds an interest of around 49% of Sears Holdings Corp (NASDAQ:SHLD), his stake amassing some 51.65 million shares of the company.

Among other investors among those that we track at Insider Monkey, Bruce Berkowitz‘s Fairholme (Fairx) also owns a significant chunk of Sears Holdings Corp (NASDAQ:SHLD) shares, his stake containing 24.67 million shares as of the end of June. Murray Stahl‘s Horizon Asset Management revealed ownership of 5.83 million shares in its latest 13F.

Disclosure: none

Free Report: Warren Buffett and 12 Billionaires Are Crazy About These 7 Stocks

Let Warren Buffett, David Einhorn, George Soros, and David Tepper WORK FOR YOU. If you want to beat the low cost index funds by an average of 6 percentage points per year look no further than Warren Buffett’s stock picks. That’s the margin Buffett’s stock picks outperformed the market since 2008. In this free report, Insider Monkey’s market beating research team identified 7 stocks Warren Buffett and 12 other billionaires are crazy about. CLICK HERE NOW for all the details.