RadioShack committee eyes examination of pre-bankruptcy lender actions

By Kali Hays

New York, Feb. 17 – RadioShack Corp.’s official committee of unsecured creditors asked the U.S. Bankruptcy Court for the District of Delaware for permission to examine and investigate the company’s financial affairs and conduct prior to its bankruptcy filing, according to a Tuesday motion.

The committee likened RadioShack’s path to bankruptcy as “assisted suicide” but said “there’s no suicide note, and there are too many unanswered questions.”

Specifically, the committee is taking issue with the company’s proposed sale of thousands of store locations in the United States to General Wireless Inc., an affiliate of Standard General LP, which acquired RadioShack’s credit agreement loan with General Electric Capital Corp., and also a decision to continue operating in 2014 while losing “$1 million a day.”

“The cost to the estates for that [sale] transaction is a blanket judicial pardon for whatever it and swap-betting hedge funds may have done when they acquired the secured debt, then caused RadioShack to immediately commence liquidating their collateral, and then caused RadioShack’s crash landing into bankruptcy to finish the job,” the motion stated.

The committee went on to claim that during the spring of 2014, RadioShack had a bankruptcy opportunity that would have “wiped out” shareholders but stemmed company losses, saved jobs and provided a recovery to unsecured creditors.

“Something happened on the way to that place, however. Instead of pursuing that or other options that may have been available, the two largest shareholders acquired the first-lien debt and dictated a different process altogether,” the committee said.

According to the motion, the shareholders, namely Standard General, Salus Capital Partners and Cerberus Capital Management, created a dual first-lien structure that would allow for a “loan-to-own” strategy to capture potential turnaround value following bankruptcy or, “if things miraculously turned around,” allow them to exchange part of the debt for majority ownership “through a massively dilutive stock transaction.”

“To fund this strategy, armed with confidential information and the express, contractual power to influence the timing of any bankruptcy, the shareholders located hedge funds which sought to avoid substantial losses on credit default swaps they had written on RadioShack debt. These are the lenders who now demand releases by the debtors’ estates,” the committee said.

With these claims, the committee asked the court to allow it to conduct discovery on RadioShack, its present and former officers and directors, Standard General and its affiliates and term loan lenders Salus and Cerberus.

A hearing to consider the motion is set for March 4.

RadioShack is a Fort Worth, Texas, technology retailer that filed for bankruptcy on Feb. 5. Its Chapter 11 case number is 15-10197.

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