Retailer RadioShack RSH.N 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 (BAC.N) and Wells Fargo (WFC.N), 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 (GEB.N), which tends to do large asset-based lending deals, could enter the fray, the people said.
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 quarters.
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.
(Reporting by Nick Brown and Dhanya Skariachan; Editing by Alden Bentley and Phil Berlowitz)