RadioShack to restructure some debt via ABL facility and new equity

By Caroline Salls

Pittsburgh, Oct. 3 – RadioShack Corp. 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, according to a company news release.

RadioShack said Standard General LP and other investors have replaced GE Capital as lead lender under its senior secured asset based credit facility, which will allow immediate access to additional liquidity.

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.

The $120 million is expected to be converted into equity in the coming months, and current shareholders will have the opportunity to participate in a rights offering at the same conversion price, the release said.

“We recognize that we will need to address constraints under our existing term loan in order to undertake a store base consolidation program and pursue other measures to reduce our cost structure,” chief executive officer Joe Magnacca said in the release.

“To that end, we are in constructive discussions with our term lenders, led by Salus Capital, toward additional steps to recapitalize RadioShack.”

The company said Friday’s agreement includes two key elements, an ABL facility and new equity.

ABL facility

Specifically, RadioShack said Standard General and other investors have acquired the loans and agreed to changes affecting the credit availability under the company’s existing ABL facility.

As a result, RadioShack said it 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 said it 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 is not completed by March 15.

New equity

Meanwhile, the company said the $120 million investment is expected to be converted into equity securities representing, together with related fees payable in equity securities, at least 50% of its outstanding equity securities upon satisfaction of conditions.

RadioShack said the conditions to the conversion include the modification of a supplier contract, at least $100 million of available cash and borrowing capacity at Jan. 15, development of a fiscal 2016 plan 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 company said it intends to initially issue equity securities that would be convertible into at least 400 million and up to 700 million shares of common stock in conjunction with the rights offering.

According to the release, the percentage of equity securities that Standard General and other investors will own as a result of this transaction will depend on 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 company said 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 RadioShack’s voting stock so long as greater voting power would accelerate company debt.

If the $120 million investment is converted into equity, the company said its board will be reconstituted to consist of the CEO, two independent directors selected by RadioShack and four individuals nominated by Standard General. The new directors must be approved by the company’s corporate governance committee, and at least two of these directors must be independent.

RadioShack said it plans to launch the rights offering late this year or in early 2015.

Because the board’s audit and compliance committee feels the delay resulting from securing shareholder approval before completion of its stock issuances would “seriously jeopardize the financial viability of RadioShack, the company said the committee approved an omission of the shareholder approval requirement.

The New York Stock Exchange accepted the company’s application for an exception.

RadioShack’s financial adviser is Peter J. Solomon Co., and its legal counsel is Jones Day. Lazard Feres and Co. is acting as the financial adviser to the company’s board of directors.

RadioShack is a Fort Worth, Texas-based consumer electronics retail chain operator.

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