Sunday, November 28, 2021
52.6 F
Fort Worth

RadioShack failure still haunts HRG as two units take losses

🕐 3 min read

NEW YORK — HRG Group Inc., the holding company formerly known as Harbinger Group Inc., is still paying for the collapse of RadioShack Corp. as it seeks to recover from losses on loans two units made to the retailer before its bankruptcy filing.

Fidelity & Guaranty Life said Wednesday that its participation in a $250 million loan to RadioShack arranged by HRG-owned Salus Capital Partners contributed to a $32 million impairment charge that wiped out its first-quarter profit. Harbinger bought FGL in 2011 under former Chairman Philip Falcone, then sold a stake of about 19 percent in an initial public offering in 2013.

HRG said in a statement it’s considering the sale of the remaining stake. It’s also reviewing options for Salus that include a sale of the firm after the lender suffered losses linked to the RadioShack loan, four people familiar with the matter said last month.

The holding company’s shake-up stems from risks it took by branching into investments in distressed companies to boost returns.

HRG reported a loss of $1.16 a share in the quarter ended March 31, compared with a loss of 63 cents in the year-earlier period, according to a regulatory filing Friday. Revenue increased 2.3 percent to $1.37 billion.

The holding company took a loss of $105 million on the RadioShack loan of the $150 million Salus and Fidelity invested in 2013, the company said.

Falcone was banned by New York State from running FGL for seven years starting in 2013 because he improperly used money from his hedge funds to pay personal taxes. Last year, he stepped down from what was then Harbinger when its largest shareholder, Leucadia National Corp., raised its stake to 23 percent.

Until RadioShack, most of Salus’s average loans were in increments of $30 million or less, according to its website.

“It’s troubling that firms like HRG and some private- equity funds are buying insurance companies and get them to invest in high-return assets,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. “It’s a question worth asking whether that’s the right thing to do by insurance firms that are supposed to take limited risks to pay their clients.”

Falcone and James Hart, a spokesman for HRG, declined to comment. Phil Denning, a spokesman at Integrated Corporate Relations for Salus Capital, and Lisa Foxworthy-Parker, a spokeswoman at Fidelity, didn’t respond to messages seeking comment.

New York is keeping an eye on investment firms that buy into insurers. Benjamin Lawsky, superintendent of the state’s Department of Financial Services, required Apollo Global Management and Guggenheim Partners to meet heightened capital standards on purchases in 2013.

HRG, whose major shareholders include Fortress Investment Group LLC, with a 16 percent stake, owns businesses from consumer products maker Spectrum Brands Holdings to oil-and-gas operator Compass Production GP.

HRG shares have fallen 13 percent this year. FGL is down 13 percent, while the Standard & Poor’s 500 index has gained 2.6 percent.

FGL’s exposure to RadioShack came through three main investments, Dennis Vigneau, chief financial officer of Fidelity, said Thursday on a conference call. They comprise a $50 million participation in the loan to the retailer, a $63 million ownership of a collateralized loan obligation managed by Salus and a $33 million investment through a reinsurance entity.

The gross impairments were $81 million, and included the loan’s fair value decreasing to $15 million and the CLO tumbling to $38 million.

“When this company came public, certain investors were concerned about some of the relationships between FGL and other Harbinger companies,” Sean Dargan, an analyst at Macquarie Group Ltd, said by telephone. “I wouldn’t mind to see there being less of a relationship between Salus and FGL going forward.”

Related Articles

Our Digital Sponsors

Latest Articles

Fort Worth Business Press Logo
This advertisement will close in
00
Months
00
Days
00
Hours
00
Minutes
00
Seconds
seconds..
Click here to continue to Fort Worth Business Press

Not ready to subscribe?

Try a few articles on us.

Enter your email address and we will give you access to three articles a month, to give us a try. You also get an opportunity to receive our newsletter with stories of the day.

This field is for validation purposes and should be left unchanged.

Get our email updates

Stay up-to-date with the issues, companies and people that matter most to business in the Fort Worth.

  • Restaurants
  • Technology
  • and more!

FWBP Morning Brief

FWBP 5@5

Weekend Newsletter

  • Banking & Finance
  • Culture
  • Real Estate