Thursday, July 10, 2014

Still No Agreement With Lenders For Radio Shack to Close Stores? $RSH

A correspondent writes,

On the one hand it seems hard to believe that the management team didn't decide that giving up some collateral on store closures wasn't a better option than continuing to burn money in a bunch of stores that should be closed.

It may suggest however, that things look truly bleak to the lenders and they just want to get their money out, with no compromising. Think about the sequence, they close the asset based line in December, Q4 is announced in March and is horrible. If you're the lender, you're thinking this is a lot worse than we thought and/or we really missed something in due diligence. Then the management team goes public with this 1000 store plan without apprising you of it. So the business is much worse than you expected and now management wants to weaken your collateral position. Doesn't sound like a great deal, especially since you probably knew the franchise had seen its best days when you made the loan. Then Q1 comes along and it is just as bad as Q4, so you just want out as the lender.

Management probably feels trapped at this point and is just hoping that their new assortment strategy is going to be the hail Mary play that works, because their only other option is BK. At some point, the board is going to have to start worrying about preserving the estate and forget about the equity's value, I'd guess they reach that point in Oct/Nov unless there is some huge change in trend between now and then."

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