Tuesday, November 11, 2014

Salus "In Talks To Increase Debt Holdings" Of Radio Shack?? $RSH

A correspondent writes in response to story about Salus being "in talks to increase debt holdings" of Radio Shack:

"Maybe Salus has decided that they want to control the process. Maybe they figure they will come out in a better place overall if they control the whole secured debt stack. Perhaps they are also trying to accelerate a bankruptcy filing. With the Standard General deal in place, the company may now be looking at March before a bankruptcy filing. Every day that goes by the rent paid to landlords, and interest to the bondholders, just reduces the secured recovery. Time isn't on the second liens' side with the company in the kind of purgatory that it's in now.

So maybe now they have an incentive to control the 1L, and can then credibly threaten the landlords with bankruptcy if they don't come up with concessions ASAP.  As it stands now, with the interests of the first liens and second liens not tightly linked, and if Standard General has a more optimistic outlook on value and the potential to restructure out of court, then the landlords don't have as great an incentive to come up with lease concessions, at least in the near term. Still seems like a long shot that they would be able to corral enough of the landlords to get enough rent relief to make it work outside of bankruptcy, but I'm just trying to conjure up a scenario that explains the behavior.

If Standard General was left with with the piece that converts into equity, that would give Salus control of the first lien, and thus control over timing and more leverage vs landlords. And it would preserve SG's call on the equity optionality while still keeping them in a 1L position prior to conversion. If SG's play was on the equity all along, this gives them more leverage from an ROI perspective if they don't have to own the whole 1L stack to own the option. I wonder what kind of deal they would cut with Salus if they moved to a minority position in the 1L about control and filing. Maybe this explains why we haven't seen an S-1 or S-3 on the rights offering. I was thinking it would likely get a fair amount of scrutiny from the SEC given the state of the company and all the machinations with the balance sheet, so if you were looking to get this done by year end or soon thereafter and have to deal with the usual notice periods, etc., and allow time for SEC review, you would want to get all that filed pretty soon."


jHurt said...

great conjecture. There is a debtwire article on this exact topic...just prepetition strategy and maneuvering to get more control upon the ch11 filing.

CP said...

Amazing that it's been this long and there's still no actual details on the rights offering, and no agreement for store closures.

jHurt said...

There is something out there about Salus considering (or maybe they did this already) sending a letter to the Board for violating their fiduciary responsibility of not having filed already. makes 100% sense to me.

Anonymous said...

That would be a great letter to see.