Fort Worth, Texas – RadioShack has confirmed reports that Standard General and other investors will provide it with a $120 million lifeline and will refinance some of its debt.
The retailer said on Friday that Standard General, Litespeed Management and other investors have ponied up $120 million to be used as cash collateralized letters of credit. The investors also replace GE Capital as lead lender under the chain’s senior secured asset based credit facility which frees up additional liquidity, and the funds can be used to help buy inventory for the rapidly approaching holiday season.
RadioShack plans to eventually convert the $120 million into new stock representing at least half its outstanding shares and, under terms of the agreement, would form a new board, with four of the seven directors to be chosen by Standard General.
CEO Joe Magnacca acknowledged that the refinancing is only a first step, and merely “provides time to pursue a longer-term restructuring” with its Salus Capital-led lender group, which would allow him to close some 1,100 stores. The consolidation is needed to slash the chain’s cost structure and cut its losses, he contends, but was blocked by lenders for whom the stores represent collateral on their loans.
In a research note, Janney Capital Market’s retail analyst David Strasser lauded Magnacca as RadioShack’s first CEO to dramatically improve the stores in more than a decade of “poor merchants running the business.”
Nevertheless, he said the rescue package has the appearance of “a desperate deal” for the retailer, whose only other alternative was bankruptcy, and that it may be “too little too late” given the chain’s cost and margin structure.
Added Magnacca: “We are pleased to complete this important step, which we believe positions us to continue to progress our operational turnaround …We look forward to continuing to serve our customers with differentiated products and an upgraded shopping experience as we move into the holiday season.”