Tuesday, December 2, 2014

"RadioShack Believes Claimed Covenant Breaches By Term Lenders Are Wrong And Self-Serving" $RSH

Press release from Radio Shack this morning, the stock is still halted:

"RadioShack Corporation (RSH) announced today that it received a notice from Salus Capital Partners, a unit of Harbinger Group, Inc., claiming covenant breaches under the $250 million Term Loan facility provided by Salus and Cerberus Business Finance, a unit of Cerberus Capital Management. The claims relate primarily to the recapitalization and investment agreement and amendment to the Company's ABL credit facility, which in each case were entered into by the Company on October 3, 2014. RadioShack believes these claims are wrong and self-serving.

RadioShack intends to vigorously contest the claims. The Company has been advised by lenders holding a majority of the loans and commitments under its ABL credit facility that they intend to continue to extend credit to the Company in accordance with the terms of the ABL credit facility. [...]

An additional critical cost reduction measure involves the closure of up to 1,100 stores so that the Company can focus on its profitable, go-forward locations. Earlier this year, RadioShack asked the term lenders for consent to close these stores, which the Company estimates would have enhanced overall EBITDA by about $83 million and created an additional $87 million of liquidity from reduced and focused inventory levels. They refused unless the Company paid significant fees, prepaid a substantial portion of their debt and agreed to other covenants and concessions that the Company believed to be unreasonable, even though these store closures would have clearly benefited the Company and its stakeholders.

Then, in late October, RadioShack requested that the term lenders consent to the closure of a smaller but significant portion of these same stores, but they again refused. Most recently, RadioShack repeated its request that the term lenders consent to permit the closure of up to 1,100 stores to provide the Company with a rational store base going forward, and yet still has not received their approval."


Rob Dawg said...

"It" is never pretty. Controlled liquidation two years ago would have been better for all. Sears Holdings, are you listening?

Mr. Gotham said...

RSH management appears to have won partial custody of the Jobsian reality distortion field with Steve's passing. How's that working out for them?

CP said...

See the Guaranty and Security Agreement:

(b) Disposition of Collateral. Without limiting the generality of the foregoing, subject to the terms of the Intercreditor Agreement, Agent may, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), during the continuance of any Event of Default (personally or through its agents or attorneys), (i) enter upon the premises where any Collateral is located, without any obligation to pay rent, through self-help, without judicial process, without first obtaining a final judgment or giving any Grantor or any other Person notice or opportunity for a hearing on Agent’s claim or action, (ii) collect, receive, appropriate and realize upon any Collateral and (iii) sell, assign, convey, transfer, grant option or options to purchase and deliver any Collateral (enter into Contractual Obligations to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of any Secured Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Agent shall have the right, upon any such public sale or sales and, to the extent permitted by the UCC and other applicable Requirements of Law, upon any such private sale, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption of any Grantor, which right or equity is hereby waived and released.

The way you (temporarily) stop a secured creditor from repossessing is the bankruptcy automatic stay.