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RadioShack May File Next Month: Report

Updated! Fort Worth, Texas — RadioShack is readying a bankruptcy filing and could seek protection as early as the first week of February, the Wall Street Journal reported.

Citing people familiar with the matter, the newspaper said the troubled chain is looking for lenders to fund operations during the reorganization, and is also in talks with a private-equity firm that could buy its assets out of bankruptcy.

Earlier this week the paper reported that RadioShack’s asset-based lender Salus Capital Partners offered it a $500 million debtor-in-possession (DIP) loan to replace its current $585 million financing package. That offer expires today.

Separately, Bloomberg cited a knowledegable source who said the chain is in “active talks” to sell Sprint the leases to some of its stores, and is looking to emerge from bankruptcy with 1,000 to 2,000 fewer locations. It currently operates over 4,400 company-owned stores in the U.S. and Mexico and over 900 franchised stores in 25 countries.

Last month Fitch Ratings placed the company on a bankruptcy watch, noting that a Chapter 11 reorganization or some other debt restructuring was likely, if not imminent, due to chain’s “severely strained” liquidity and estimated negative free cash flow of up to $80 million this quarter.

RadioShack itself acknowledged in a recent federal filing that “we may not have enough cash and working capital to fund our operations beyond the very near term, which raises substantial doubt about our ability to continue as a going concern.” 

Indeed, the company continues to bleed green, with only $62.6 million in cash and available credit as of Nov. 1, down from $183 million in August and $424 million in May. The chain also reported weak third-quarter results, including a 13.4 percent decline in comp sales, a 16.1 percent drop in both net sales and operating revenues, and a net loss of $161.1 million — and observers consider it unlikely that its sales and traffic trends changed dramatically over the holiday season.

CEO Joe Magnacca, fighting a rear-guard action, has proposed an ambitious cost-cutting program that would add $400 million a year in earnings. But the most critical element of his turnaround plan — the closure of some 1,100 stores, or roughly one-quarter of its U.S. store base — has been repeatedly blocked by Salus, which views those assets as collateral.