RadioShack, Hedge Fund Hashing Out Auction Process
Court-Supervised Chapter 11 Filing of Electronics Retailer Bogged Down
RadioShack, which is running out of cash after reporting losses in each of the last 11 quarters, was aiming to file for Chapter 11 protection as early as Monday, the people said. But as of Sunday afternoon, the company and its advisers were still working out the details of an agreement with Standard General to serve as the so-called stalking horse at a court-supervised auction for RadioShack’s assets, some of the people said.
Standard General last year became the company’s largest shareholder and led a financing that helped RadioShack get through the holidays.
One scenario under discussion would have Standard General bid to buy a RadioShack with far fewer stores, one of the people said.
Workers at several RadioShack stores said the company has told them to help clear out many locations in February by shipping big-ticket smartphones to nearby stores and slashing prices on remaining inventory. The company operates roughly 4,300 stores in North America but has said it needs to close many of them.
RadioShack also hasn’t finalized the terms of a loan that would fund its operations during the restructuring, according to people familiar with the discussions.
Salus Capital Partners, which led a $250 million loan for RadioShack in late 2013, last month offered to provide a loan of $500 million to fund the retailer’s bankruptcy, The Wall Street Journal reported.
Items up for discussion include how many stores to close and milestones meant to protect lenders providing the bankruptcy financing, known as a “debtor-in-possession” loan, one of the people said.
As companies often do as they approach bankruptcy, RadioShack is trying to get some of its lenders and other stakeholders on board with a pre-determined course of action. Such agreements can ease a company’s trip through bankruptcy court, but they require the agreement of multiple parties that sometimes have conflicting agendas.
RadioShack and Salus have had a contentious relationship at times. The lender has prevented the company from ramping up its store-closing efforts, citing a condition in the 2013 financing that limits the company to 200 closings per year.
RadioShack last year announced plans to close as many as 1,100 stores, but Salus refused to sign off on the additional closings.
RadioShack, which employed 24,000 people late last year, warned in a December securities filing that it could be forced into bankruptcy court if it couldn’t raise new funds or get relief from lenders that have blocked its store-closing efforts.
The company said in the filing that it had $62.6 million on hand as of Nov. 1–$43.3 million in cash and $19.3 million in borrowing availability.
On Friday, RadioShack shares closed at 27.7 cents each, down 10.7%.