RadioShack announces details of agreements to restructure some debt

By Caroline Salls

Pittsburgh, Oct. 7 – RadioShack Corp. announced more details of its agreements to restructure a portion of its existing debt, which will provide additional near-term liquidity and serve as a first step in its efforts to complete a recapitalization of the company, according to an 8-K filed Monday with the Securities and Exchange Commission.

RadioShack said it entered into a loan sale agreement with seller General Electric Capital Corp. and purchasers General Retail Holdings LP (GRH) and General Retail Funding LLC, as well as Standard General Master Fund LP and some Standard General LP affiliates.

Under the agreement, interests in the loans, commitments and other financial accommodations related to an ABL credit agreement were sold.

Credit agreement amendment

In addition, the company entered into a first amendment to the credit agreement with the lenders and successor administrative agent Cantor Fitzgerald Securities.

According to the 8-K, the first amendment subdivided the revolving credit commitments under the ABL credit agreement into a $275 million facility of outstanding revolving loans that were converted into term loans on Oct. 3, an up to $120 million facility available solely for letters of credit and an up to $140 million facility available solely for revolving loans.

RadioShack said the amendment also includes an agreement to release the discretionary borrowing base reserves under the ABL credit agreement and restore the methods used to calculate the borrowing base to those used in December 2013, in each case until the earlier of an event of default and March 15.

After that, the lenders may impose discretionary reserves and change the method of calculating the borrowing base. These changes increased the amount of borrowing availability as of Oct. 3 by $142.3 million, which was immediately accessed by the company.

The company said it incurred $31.8 million of financing fees in connection with these transactions. Up to $8.1 million of these fees will be refunded if specified refinancing transactions are completed by Oct. 17, and, alternatively, $2.2 million of these fees will be reimbursed in specified circumstances involving the failure of a sponsor conversion to be completed.

In addition, the amendment permitted the letter-of-credit lenders to convert funded obligations into shares of a new series of preferred stock of RadioShack and adds an additional event of default under the ABL credit agreement that would result if some recapitalization agreement steps are not completed by March 16.

These steps include entry into an amendment to, or a replacement contract for, the company’s current contract with a third-party supplier, completion of a rights offering and taking the necessary actions to ensure that the company’s board of directors is reconstituted.

Other amendments that will take effect upon the refinancing of the company’s credit agreement include elimination of a prohibition against sale/leaseback transactions, permitting the sale of inventory and other assets outside of the ordinary course of business in connection with store closings, permitting the sale of distribution centers and allowing RadioShack to amend wireless carrier contracts without agent consent.

Recapitalization terms

RadioShack said it also entered into a recapitalization and investment agreement with GRH.

Under the recapitalization agreement, the company will distribute to its stockholders transferrable rights to subscribe to purchase a total of 150,000 shares of preferred stock at a price of $800 per share.

The preferred stock will be convertible into a total of 300 million shares of the common stock of the company. The purchase price payable for preferred stock upon the exercise of the rights equates to $0.40 per share of common stock.

The rights offering is expected to be completed in the first quarter of 2015.

The recapitalization agreement also calls for the issuance to GRH by RadioShack of 150,000 shares of preferred stock, which will be convertible into 300 million shares of common stock.

These shares will be issued in exchange for cancellation of outstanding letter-of-credit reimbursement obligations to the extent the company reduces or terminates the commitments of GRH to issue letters of credit under the amended ABL credit agreement, as well as the right of the company to receive all amounts withdrawn by GRH from its cash collateral account upon any reduction or termination of GRH’s commitment to issue letters of credit.

In consideration of GRH’s obligations under the recapitalization agreement, the company will issue to GRH an additional 50,000 shares of preferred stock, which will be convertible into 100 million shares of common stock, concurrently with the completion of the rights offering and sponsor conversion.

Depending on the rights offering participation level, existing stockholders will own between 20% and 50% of the company’s common stock on an as-converted basis.

RadioShack said the recapitalization agreement also calls for the establishment of a six-person transaction committee to consist of three members designated by GRH, RadioShack’s chief executive officer and chief financial officer and one other representative appointed by the company. The transaction committee will oversee and coordinate discussions regarding the recapitalization transactions and the implementation of an interim operating plan.

The agreement also contains restrictions on RadioShack’s ability to initiate, solicit or encourage any inquiries or the making of any proposal or offer that would be a competing proposal to the transactions included in the agreement, as well as on its ability to enter into discussions, negotiations or agreements regarding a competing proposal.

The company said these restrictions are subject to exceptions for it to respond appropriately to unsolicited, bona fide proposals or offers received before Nov. 17.

Under the recapitalization agreement, the company is obligated to enter into a merger agreement with a newly formed, wholly owned subsidiary and seek stockholder approval of the merger promptly after the completion of the rights offering.

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

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