By Fort Worth Business Press, Associated Press and Bloomberg reports
RadioShack says it has inked deals with a group of investors to restructure part of its debt and access funds, moves aimed at giving the struggling consumer electronics retailer more financial breathing room. The Fort Worth-based chain said Friday that Standard General LP and other investors have acquired a credit line that GE Capital had extended to RadioShack. The retailer expects it will be able to draw on that credit to buy inventory ahead of the holiday shopping season. RadioShack says that Standard General, Litespeed Management and other investors are providing $120 million in an investment that the chain expects will be converted into equity securities.
RadioShack warned last month that it may need to file for Chapter 11 bankruptcy protection as it struggles to compete with online retailers. Standard General LP and certain other investors have replaced GE Capital as lead lender under RadioShack’s senior secured asset based credit facility which will allow immediate access to additional liquidity. Other investors, including RadioShack shareholders Standard General and Litespeed Management LLC, are providing $120 million to be used to cash collateralize letters of credit for the Company. In the coming months, this $120 million is expected to be converted into equity. Current shareholders will have the opportunity to participate in a rights offering at same conversion price. “We are pleased to complete this important step, which we believe positions us to continue to progress our operational turnaround,” said Joe Magnacca, RadioShack’s CEO in a news release. “We recognize that we will need to address constraints under our existing term loan in order to undertake a store base consolidation program and pursue other measures to reduce our cost structure. This amended ABL Facility provides time to pursue a longer-term restructuring. To that end, we are in constructive discussions with our term lenders, led by Salus Capital, toward additional steps to recapitalize RadioShack.” “The move may provide RadioShack with enough of a financial cushion to last through the crucial year-end shopping season. Still, it doesn’t change the long-term picture for the struggling retailer, said Anthony Chukumba, an analyst for BB&T Capital Markets in New York. RadioShack has posted 10 straight quarters of losses, hurt by competition from e-commerce sites and discount retailers.
“This is a stopgap measure,” Chukumba said. “It will get them through the 2014 holidays. This does not in any way, shape or form guarantee their long-term viability.” Standard General said in a filing last month that it was working to improve RadioShack’s liquidity before the holidays. The fund, RadioShack’s largest investor, also entered into a standstill agreement lasting until June 2015 that prevents it from taking over the board or proposing an acquisition or restructuring without RadioShack’s consent. The refinancing gives RadioShack access to more cash and greater flexibility, since the current debt agreement restricts how much money it can draw from the revolver, according to a Dec. 13 filing with the Securities and Exchange Commission. It also may provide the retailer with enough leeway to close a larger number of underperforming stores, helping the company burn less cash. RadioShack creditors blocked a plan earlier this year to shut 1,100 stores, forcing the retailer to limit the closings to as many as 200.
Standard General emerged as a potential savior for the retailer in August, when Bloomberg reported that the hedge fund was in financing talks. The firm previously orchestrated a lifeline for American Apparel, another troubled retailer. RadioShack CEO Magnacca has been remodeling stores and revamping its product lineup in a bid to revive sales. The former Walgreen executive, who took over last year, brought in a new leadership team and has outlined what he calls the “five pillars” of a turnaround, including boosting efficiency and repositioning its brand. So far, the plan hasn’t reversed RadioShack’s decline. Comparable-store sales — considered a key gauge of performance — fell about 20 percent last quarter. The 93-year-old company has only reported one quarter of positive same-store sales in the past three years. RadioShack said last month that it has liquidity of $182.5 million, including $30.5 million in cash. RadioShack’s financial advisor is Peter J. Solomon Company and its legal counsel is Jones Day. Lazard Feres and Co. is acting as the financial advisor to RadioShack’s Board of Directors. Debevoise & Plimpton LLP is legal counsel to Standard General. Blank Rome LLP advised investors of the ABL Facility.