As Sears (SHLD  ), the once-flourishing retail holding company, heads into increasingly choppy financial waters, CEO Edward Lampert said the company needs to drastically restructure its debts to avoid "alternatives, including bankruptcy.

Mr. Lampert's hedge fund, ESL Investments, has proposed a series of deals that would reduce the retailer's $5.6 billion debt load. They include selling off many of its remaining stores and asking lenders to exchange their loans for equity stakes in the beleaguered company. Sears' board would sell off roughly $1.75 billion worth of assets, reducing the retailer's total debt by nearly 80% to $1.24 billion.

ESL's proposal, outlined in a securities filing on Monday, amounts to a wholesale financial restructuring of Sears outside a Chapter 11 bankruptcy filing.

Sears would also sell about $1.5 billion worth of real estate, much of which has been used as collateral in the past to generate liquidity, as part of the proposal. Some of the stores in such a transaction would be leased back to Sears, the filing said. Sears operated 866 stores under both its namesake brand and Kmart as of August 4th.

While Sears has been troubled for years, ESL's proposal signals an increased urgency from Mr. Lampert. His firm is warning that Sears now faces "significant near-term liquidity constraints," with $134 million in debt coming due in a few weeks.

The CEO has been consistently selling off assets to keep the company afloat over the past several years. It's unclear whether Sears' current debtholders will continue to support these efforts, which have amounted effectively to restructuring outside of formal bankruptcy proceedings. Those debtholders must be convinced that Sears - namely its real estate and its brands - is worthwhile despite its constant losses. The longer Sears waits to file for bankruptcy, the more the value of its assets arguably decline.

"Indeed, had Sears been owned by anyone else it would have likely long since gone under," said Neil Saunders, managing director at GlobalData Retail.

Last month, ESL offered to buy Sears's Kenmore brand for $400 million. A special committee of the retailer's board is still reviewing that offer.

Lampert's biggest deal occurred three years ago, where he and other investors formed a real estate company called Seritage and paid $2.7 billion for about 235 Sears stores, including many in prime locations. Many of those are being turned into upscale offices, condominiums, and restaurants, investments that have been lucrative for Mr. Lampert and other Seritage investors.