Can RadioShack Close 1,000 Stores?

In disclosing a new financial lifeline, management reported:

RadioShack Corporation announced that it has entered into definitive agreements to restructure a portion of its existing debt, providing additional near-term liquidity and serving as a first step in a stronger foundation for the Company’s continued business transformation.

Standard General LP and certain other investors have replaced GE Capital as lead lender under RadioShack’s senior secured asset based credit facility (“ABL Facility”) which will allow immediate access to additional liquidity. Other investors, including RadioShack shareholders Standard General and Litespeed Management LLC, are providing $120 million to be used to cash collateralize letters of credit for the Company. In the coming months, this $120 million is expected to be converted into equity. Current shareholders will have the opportunity to participate in a rights offering at same conversion price.

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And:

Today’s agreements include two key elements:

ABL Facility — Standard General and certain other investors have acquired the loans and agreed to changes affecting the credit availability under RadioShack’s existing ABL Facility. As a result, RadioShack believes that it will have sufficient credit capacity under the ABL Facility to fund its inventory build for the Holiday season. Because borrowing availability under the amended ABL Facility changes in March 2015, the Company expects to seek to refinance the facility by that time. In addition, the amended ABL Facility will be required to be refinanced if the rights offering described below is not completed by March 15, 2015.

New equity — The $120 million investment is expected to be converted into equity securities representing (together with related fees payable in equity securities) not less than 50% of the Company’s outstanding equity securities upon satisfaction of certain conditions. These conditions include the modification of a supplier contract, at least $100 million of available cash and borrowing capacity at January 15, 2015, development of a fiscal 2016 plan satisfying certain requirements and the completion of a rights offering to existing RadioShack shareholders to purchase equity securities at a price of $0.40 per common share equivalent.

The percentage of equity securities that Standard General and other investors will own as a result of this transaction will depend upon the level of participation, if any, of existing shareholders in the rights offering. If no shares were purchased in the rights offering, existing shareholders would own 20% of RadioShack’s equity securities. The voting rights of any person or group acquiring equity securities in the transaction would be limited to 34.9% of the total voting power of the Company’s voting stock so long as greater voting power would accelerate Company debt.

In all likelihood, part of the RadioShack’s turnaround plan has to mirror its earlier efforts. It has more than 4,400 operating stores and 900 dealers and “other outlets.” Measure this against revenue, which dropped to $674 million in the most recent quarter from $861 million in the same period the year before. The formula of current stores to revenue cannot be maintained.

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