By Nick Brown and Dhanya Skariachan
Aug 13 Retailer RadioShack is looking to
refinance its debt by securing new, lower-cost loans, a process
it would like to complete by the end of the year, according to
two sources familiar with the matter.
The struggling electronics chain, whose shares have tanked
as sales have fallen over the past year, believes it can avoid a
restructuring if it can pay off current lenders, including Bank
of America and Wells Fargo, and secure more
favorable borrowing terms from new lenders, said the sources,
who declined to be named because discussions are ongoing.
The process is in its early stages, and no deals have been
proposed, one of them said. It is possible lenders like Wells
Fargo and Bank of America would supply new loans, and third
parties like GE Capital Corp, which tends to do large
asset-based lending deals, could enter the fray, the people
Representatives for Bank of America and RadioShack declined
comment. A Wells Fargo spokeswoman did not have an immediate
comment. GE Capital did not respond to a request for comment.
Whether RadioShack can actually achieve such a refinancing
is unclear, given the reluctance of lenders to provide capital
to a highly distressed retailer.
If "the company only gets $25 million or $50 million, and
has to pay millions of dollars in fees to accomplish it, it is
probably not going to be worth the company's time," one of the
people said. "However, if they can get $100 million or $150
million more in liquidity, then it starts to become meaningful."
RadioShack is working with bankers from Peter J Solomon to
help it increase its liquidity, as well as turnaround advisers
from Alix Partners who are focused mainly on helping the company
operate. RadioShack has not hired restructuring lawyers, one of
the people said.
The retailer's total debt was about $713 million at the end
of last quarter. Its liquidity was about $818 million, but has
since shrunk to about $600 million, one of the people said.
The retailer had to resort to deep discounting to boost
sales in the second quarter, a move that squeezed margins. Last
month, it reported a wider-than-expected quarterly loss as its
financial chief left the company, stepping up pressure to
stabilize its business ahead of the holiday selling season.
Sales at the electronics chain have been in free fall amid
executive departures, cutthroat competition and an image
problem. Despite its ubiquitous presence in the United States,
analysts say the retailer has not done enough to transform
itself into a destination for mobile phone shoppers or to become
sufficiently hip to woo younger shoppers.
If RadioShack is to achieve a refinancing, it would likely
need a deal in place by October, said one of the people familiar
with the matter. After that, the parties may be apt to stand
down until after the holidays, the person said.
A turnaround for RadioShack is sure to be a long process.
Chief Executive Joe Magnacca, who took the helm in February,
said last month he expected the process to take several
The company still has enough liquidity to take it well into
next year, said one of the people familiar with the matter.
RadioShack shares have fallen about 27 percent over the past
three months. They closed down 0.4 percent at $2.75 Tuesday on
the New York Stock Exchange.