RadioShack gets covenant breach notice from term loan lenders

By Jennifer Chiou

New York, Dec. 2 – RadioShack Corp. announced that it received a notice from Salus Capital Partners claiming covenant breaches under the $250 million term loan facility provided by Salus and Cerberus Business Finance.

According to a news release, the claims relate primarily to the recapitalization and investment agreement and amendment to the company’s ABL credit facility entered into on Oct. 3.

RadioShack said it believes these claims are wrong and self-serving. It intends to vigorously contest the claims.

The company noted that it has been advised by lenders holding a majority of the loans and commitments under its ABL credit facility that they intend to continue to extend credit to the company.

RadioShack stated in the release that is has communicated clearly to the term lenders that it has additional cost-reduction measures in process that it intends to announce in connection with its upcoming quarterly earnings release.

“We will do everything we can to assure that these claims do not distract us from our ongoing efforts to rationalize our capital structure and transform our business,” chief executive officer Joe Magnacca said in the release.

“Despite their intimate knowledge of the challenges that RadioShack faced when they extended credit to us late last year, our current term lenders have repeatedly blocked our efforts to accelerate and intensify our turnaround and make smart decisions for our business.

“Now, prompted by their narrow self-interest, they appear to be trying to manufacture a problem during the critical holiday shopping season in an effort to get out of a loan on which they have already reaped more than $35 million in fees and interest payments,” Magnacca added.

The CEO noted that recapitalization steps announced in October could result in the conversion of at least $120 million of debt into equity.

Salus is a unit of Harbinger Group, Inc.

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

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