New Lenders Buy Time for RadioShack

FORT WORTH—RadioShack Corp. late Friday announced a deal to restructure a portion of its existing debt and help it get through the holiday selling season. However, the agreement with a group led by Standard General LP may see control of the struggling electronics retailer's stock pass to the lenders.

Under terms of the agreement announced Friday afternoon, Standard General and other investors have acquired RadioShack's senior secured asset based credit facility, replacing GE Capital as lead lender. In the process, the group has also eased credit availability, providing RadioShack with $120 million to collateralize letters of credit.

Assuming that holiday sales are strong and the company—which recently cited bankruptcy as an option—is in relatively good shape, the lenders will convert that $120 million into between 50% and 80% of RadioShack stock. Although existing shareholders will be able to acquire more stock in a rights offering planned for early next year, they will not own a majority.

Completion of that conversion into equity would not occur until other conditions are met, RadioShack said Friday. Among them are the modification of a supplier contract; at least $100 million of available cash and borrowing capacity at Jan. 15, 2015; development of a fiscal 2016 plan satisfying certain requirements; and the completion of a rights offering to existing shareholders at 40 cents per common share equivalent. 

“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,” says RadioShack CEO Joe Magnacca. He notes that the deal with Standard General  “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.”