Jodi Xu, Lauren Coleman-Lochner and Stephanie Ruhle (c) 2014, Bloomberg News
RadioShack is talking with shareholder Standard General about getting a rescue financing package that could help the retailer stave off a bankruptcy filing, two people with knowledge of the matter said.
Standard General, a hedge fund that’s also orchestrating a lifeline for American Apparel, is seeking to bolster RadioShack’s cash by issuing debt or equity, said the people, who asked not to be identified because the discussions are private. The firm also is working with RadioShack’s management to craft a plan that would avoid Chapter 11, the people said.
Without a capital infusion, the seller of phones, electronics and batteries will probably face a cash crunch next year, according to Moody’s Investors Service. RadioShack, based in Fort Worth, Texas, lost $98.3 million in the three months ending May 3, while same-store sales tumbled 14 percent.
Standard General also is seeking to refinance RadioShack’s $250 million second-lien term loan, which is held by Salus Capital Partners and Cerberus Capital Management, the people said. Paying down that debt may give the retailer enough leeway to close a larger number of underperforming stores, helping stem cash losses. RadioShack creditors had blocked a plan to shut 1,100 stores earlier this year, forcing the retailer to limit the closings to as many as 200 instead.
Merianne Roth, a spokeswoman for RadioShack, declined to comment, as did Salus’s Emily Serafin and Standard General’s John Dillard.
RadioShack shares rose as much as 14 percent after Bloomberg reported on the potential Standard General deal. As of 12:53 p.m., the stock traded at 80 cents in New York, up 11 percent. Before today, the company had lost almost three- quarters of its value this year.
Standard General, based in New York, owned more than 7 percent of RadioShack’s shares as of June 30, according to data compiled by Bloomberg.
Credit traders have signaled mounting concern that the retailer is facing an imminent default.
The cost of protecting against default by the chain within six months had surged to as high as 60.5 percent upfront on Aug. 12, according to data provider CMA, which is owned by McGraw Hill Financial and compiles prices in the privately negotiated market. That means it cost $6.05 million initially to protect $10 million of debt for six months. It was 44.5 percent as of Aug. 26, data show.
Chief Executive Officer Joe Magnacca has been remodeling stores and revamping RadioShack’s product lineup in a bid to shed its reputation as a throwback to 1980s shopping malls. Still, analysts have grown increasingly concerned that the company won’t have enough time to execute the turnaround.
“We haven’t seen any evidence of any positive impact from the turnaround plan yet,” Mickey Chadha, a Moody’s analyst in New York, said in an interview this month.
While Magnacca has cut cash needs by pruning inventory, the company is still in a tough spot because more than half of its sales come from mobile phones, Chadha said.
“That is a very, very competitive space, and the margins are very thin, and you have no pricing power,” he said.
— With assistance from Sherri Toub and Sridhar Natarajan in New York.