Moody's cuts RadioShack to junk

Moody's Investor Services said it downgraded RadioShack Corp.'s senior unsecured rating to Ba1 from Baa3 and commercial paper rating to Not Prime from Prime-3 and assigned Ba1 corporate family and probability-of-default ratings, a loss-given-default assessment of LGD4 (50%) and an SGL-1 speculative grade liquidity rating to the company and Ba1 (LGD4, 56%) ratings to its senior notes.

The outlook is stable.

The agency said the downgrade reflects RadioShack's recent struggles to overcome lackluster sales and operating performance, much of which stem from the switch in cellular phone carriers in late 2005, and which have resulted in leverage that is inconsistent with an investment-grade credit profile. The debt-to-EBITDA ratio increased to 4.5x at the end of 2006 and EBIT margin has fallen over 150 basis points to 7.3%. In addition, while the new senior management team has articulated a turnaround plan, it remains to be seen how the plan will impact future operating performance.

RadioShack's Ba1 rating is supported by the company's nationwide franchise of 4,400 retail locations, its somewhat unique product mix, especially in the peripheral and accessories segments, and its recent entree into the competitive flat-panel television market, Moody' said.

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