Halted: Believes Claimed Covenant Breaches By Term Lenders Are Wrong And Self-Serving
- 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.
- Company has reconfigured store hours at select locations that are expected to reduce annual operating costs by $35 million and have also completed major cost reduction projects, principally saving costs in IT and more efficient DC operations, of over $39 million.As the Company has communicated clearly to the term lenders, it has additional cost-reduction measures in process that it intends to announce in connection with its upcoming quarterly earnings release, which it believes could save an additional $200 million or more in operating expenses beyond the impact of the store closures, dramatically improving the cash flow of its business.
- 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.
