How Much Can RadioShack Expect to Get From Standard General?

Retail

Published: August 28, 2014 12:30 pm

RadioShack Corp. (NYSE: RSH) shares are still soaring on Thursday after reports earlier in the week that shareholder Standard General could offer a financing package that might help the struggling retailer avoid bankruptcy for a while.

Hedge fund Standard General was the same outfit that offered a $25 million lifeline for American Apparel Inc. (NYSEMKT: APP) after the ouster of founder and chief executive officer Dov Charney. Standard General reportedly owned more than 7% of RadioShack as of June 30 and may have increased that stake to almost 10%. That is smaller than its stake in American Apparel, though. And at issue for RadioShack is a $250 million second-lien term loan held by Salus Capital Partners and others. So how much of a “rescue” can RadioShack expect?

Still, RadioShack CEO Joe Magnacca joined American Apparel’s board as part of that rescue deal, so it would seem that Standard General may have had the electronics purveyor in its plans back then.

Creditors such as Salus Capital Partners had blocked a plan to shut 1,100 underperforming RadioShack stores earlier this year, limiting the number of closings to only 200. Paying down debt may allow the retailer to return to its earlier plan and to stay afloat until some of its efforts at a turnaround have more time to pay off.

RadioShack faces stiff competition from the likes of Best Buy Co. Inc. (NYSE: BBY) and Amazon.com Inc. (NASDAQ: AMZN) and has struggled to revive itself. It is said to have burned through 40% or more of its cash on hand in its most recent quarter, leaving it with only $62 million. By some estimates, the retailer will run out of cash as soon as next year, without a rescue, necessitating a Chapter 11 filing.

Shares rose nearly 20% on Tuesday when reports first surfaced and continued to surge Wednesday. Shares were up another 30% in midday trading Thursday, at $1.42 in a 52-week range of $0.55 to $4.36. The mean price target of analysts is down at $1.13.

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