(The following statement was released by the rating agency)
CHICAGO, December 23 (Fitch) Fitch Ratings has affirmed its
Issuer Default Rating (IDR) on RadioShack Corporation
(RadioShack). Fitch has
also assigned ratings to the company's new credit facilities. A
full list of
rating actions follows at the end of this release.
Key Rating Drivers:
The IDR reflects the significant decline in RadioShack's
profitability and cash
flow, which has become progressively more pronounced over the
past two years.
Weak results have been due in particular to the gross margin
pressure in the
company's mobility segment (around 50% of sales), and have led
to a marked
deterioration in the company's credit profile. There is a lack
of stability in
the business and no apparent catalyst to stabilize or improve
EBITDA was negative $69 million in the 12 months ended Sept. 30,
2013, and Fitch
estimates it will be in the negative $80 million-$100 million
range in 2013,
with no improvement expected in 2014/2015. Fitch expects capex
to run at $50
million annually, while interest expense is expected to be
around $50 million in
2013 and closer to $55 million in 2014/2015. Free cash flow
(FCF) is expected to
be in the negative $100 million range for 2013, assuming some
benefit to working
capital from planned inventory reductions this year.
Fitch expects RadioShack to end 2013 with about $250
million-$300 million in
cash and full availability on its $535 million revolving credit
2013, FCF could track at negative $175 million to $200 million
RadioShack will have to fund its fourth-quarter seasonal working
estimated at $150 million-$250 million. This will drain the
position materially over the next 24 months.
New Credit Facilities:
On Dec. 10, 2013, RadioShack entered into new five-year credit
composed of a $585 million senior secured asset-based lending
facility, and a $250 million secured term loan. This represents
$200 million of gross liquidity (before significant upfront
including an $85 million increase in the size of the revolver
and $125 million
of additional term loans. There are no financial maintenance
covenants in either
of the new facilities.
The ABL credit facility includes a $535 million revolver at a
borrowing rate of
LIBOR plus 2.0%-2.5%, and a $50 million first-in-last-out term
loan at LIBOR
plus 4%. The facility is secured by a first lien on current
assets and a second
lien on fixed assets, intellectual property and stock of
subsidiaries. The $250
million term loan is secured by a first lien on fixed assets,
property and stock of subsidiaries, and a second lien on current
assets, and is
at a borrowing rate of LIBOR plus 11%.
The ratings on the various securities reflect Fitch's recovery
is based on a liquidation value of RadioShack in a distressed
scenario of $576
million as of Sept. 30, 2013. Most of the value comes from
inventories, of which
half are assumed to be mobile phones which are assigned a
liquidation value of
85%, and the balance are other inventories at a liquidation
value of 50%. Fitch
uses a liquidation value of 30% for receivables to reflect the
netting out of
estimated payables to the wireless carriers.
The ABL facility, including both the $535 million revolver and a
term loan, has outstanding recovery prospects (91%-100%), and a
'B/RR1'. The $250 million term loan is rated two notches below
facility, at 'CCC+/RR3', implying good recovery prospects of
51%-70%. The $325
million of senior unsecured notes due in May 2019 are rated
poor recovery prospects (0%-10%).
Stabilization in the business leading to a sustainable recovery
trends and financial flexibility could lead to an upgrade.
EBITDA would have to
reach at least a cash flow breakeven level of $100 million
(capex of $50 million
and interest expense of at least $50 million), which is not
expected in the
near- to intermediate-term.
Continued deterioration in EBITDA that further constrains cash
liquidity, and impedes the company's day-to-day operations would
lead to a
Fitch has taken the following rating actions:
--Long-term IDR affirmed at 'CCC'
--$535 million senior secured ABL revolver rated 'B/RR1';
--$50 million senior secured ABL term loan rated 'B/RR1'
--$250 million secured term loan rated 'CCC+/RR3'
--Senior unsecured notes affirmed at 'CC/RR6'.
Philip M. Zahn, CFA
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Monica Aggarwal, CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013);
--'Recovery Ratings and Notching Criteria for Nonfinancial
(Nov. 20, 2013).
Applicable Criteria and Related Research:
Recovery Ratings and Notching Criteria for Non-Financial
Corporate Rating Methodology: Including Short-Term Ratings and
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