The full earnings report from RadioShack Corp. (NYSE: RSH) was nothing shy of a disaster. Our take is that the company was formally putting shareholders in the back seat to creditors, based on the wording and warnings in the press release and in the subsequent 10-Q filing with the Securities and Exchange Commission.

24/7 Wall St. wanted to deal with some of the additional warning signs in Thursday’s news. Our take: get ready for a Chapter 11 reorganization at a minimum, but don’t be surprised at all if or when you see a Chapter 7 liquidation.

Standard & Poor’s apparently shares our concerns. The firm moved its credit rating to the lowest possible rating a credit ratings agency can still have outside of default. S&P downgraded RadioShack’s corporate credit ratings to CCC- from CCC, and its has a downgrade bias ahead as well to Outlook Negative. Any form of a D rating is under the Default category.

By the way, when a company says it will not take questions in its earnings conference call, it is rarely a good sign.

As a reminder, there are now at least two analysts on Wall Street who have formally issued $0 price targets, warning that bankruptcy is likely unavoidable. RadioShack said it is in “advanced discussions” with parties as well, so something has to come to a head soon, and creditors prevented RadioShack from shutting down 1,100 stores previously. Those creditors are in control of the fate of this company and they have no concern for the potential losses the common stockholders have faced or will face ahead.

READ ALSO: The 5 Most Heavily Shorted NYSE Stocks

We have highlighted the comments that you need to pay attention to. Joseph Magnacca, RadioShack’s chief executive officer, said:

For the past 18 months we have been working hard on our turnaround plan. While we are advancing on many fronts, we may need additional capital in order to complete our work. As a result, we are actively exploring options for overhauling our balance sheet and are in advanced discussions with a number of parties. We are also working with our key financial stakeholders, including our existing lenders, bondholders, shareholders and landlords seeking to create a long-term solution. This may include a debt restructuring, a store base consolidation program, and other measures to make significant reductions in our cost structure. The details of a recapitalization have yet to be finalized, and we are reviewing several alternatives, some of which would require consent from our lenders. There is no pre-determined outcome to this work and, of course, we cannot be certain as to the outcome from the current discussions. Our highest priority is working on a solution to maximize the value to all of our stakeholders.

RadioShack ended the quarter with total liquidity of $182.5 million at August 2, 2014, including $30.5 million in cash and cash equivalents and $152.0 million of availability under a credit agreement. This availability is net of letters of credit totaling $89.4 million and $43.0 million in borrowings outstanding at August 2, 2014. RadioShack’s total debt was $658.0 million at August 2, 2014, which matures between 2018 and 2019. And Magnacca said the company “may need additional capital” in the release?

The 10-Q SEC filing shows Liquidity Concerns as follows:

If acceptable terms of a sale or partnership or out-of court restructuring cannot be accomplished, we may not have enough cash and working capital to fund our operations beyond the very near term, which raises substantial doubt about our ability to continue as a going concern. As a result, we may be required to seek to implement an in-court proceeding under Chapter 11 of the United States Bankruptcy Code (“Bankruptcy Code”). If we commence a voluntary Chapter 11 bankruptcy case, we will attempt to arrange a “pre-packaged” or “pre-arranged” bankruptcy filing. In a “pre-packaged bankruptcy”, we would make arrangements with new and existing creditors for additional liquidity facilities and the restructuring of our existing debt terms, before presenting these arrangements to the bankruptcy court for approval. In the absence of a “pre-packaged” bankruptcy, we would consider a “pre-arranged” bankruptcy filing, in which we would reach agreement on the material terms of a plan of reorganization with key creditors prior to the commencement of the bankruptcy case. An in-court restructuring proceeding would cause a default on our debt with our current lenders.

We anticipate that in the near term we will seek to pursue one of the alternatives described above which may include a restructuring of existing debt terms and other arrangements to provide additional liquidity. As part of the various alternatives, we may begin a program to close a number of underperforming stores and other measures to make reductions in our cost structure. However, the actual number of store closures could vary considerably depending on the specific restructuring alternative implemented. Absent an agreed upon restructuring plan, the store closure program would require consent from our lenders.

There can be no assurance that any of these efforts will be successful. Each of the foregoing alternatives may have materially adverse effects on our business and on the market price of our securities. In the event the restructuring alternatives described above are not achievable, we would likely be required to liquidate under Chapter 7 of the Bankruptcy Code.

Again, 24/7 Wall St. expects that shareholders are likely to walk away with next to nothing here. Our take is that “stakeholder” being used as a term for creditors and shareholders, while stockholders is a term for those who own common stock.

READ ALSO: The Most Heavily Short Nasdaq Stocks

While RadioShack’s reaction was up four cents to $0.97 (after a high of $1.15 earlier in the day), we would chalk that up to day traders and penny stock traders. The notion that it traded 18 million shares with just over one hour until the close does nothing to alter that conviction.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.