RadioShack Corp., the electronics retailer with seven straight quarterly losses, plans to meet lenders on Nov. 5 to discuss $835 million of loans it’s seeking to refinance debt, according to a person with knowledge of the transaction.
The financing consists of a $585 million first-lien loan and a $250 million second-lien piece, said the person, who asked not to be identified because terms aren’t set.
The deal would provide the company with $175 million of additional liquidity as Chief Executive Officer Joe Magnacca leads a turnaround of the business, according to RadioShack’s earnings report on Oct. 22. The financing falls short of what the retailer needs to turn itself around after a “sharp decline” in third-quarter performance, according to debt research firm CreditSights on Oct. 23.
“I would be surprised if the rate on the second-lien term loan is significantly lower than what they have now,” Mickey Chadha, a New York-based analyst with Moody’s Investors Service, said in a telephone interview. “They need to show positive momentum in their operating performance in order to reduce their cash burn.”
The Fort Worth, Texas-based retailer’s existing loans consist of a $450 million asset-based revolver that was arranged by Bank of America Corp. and Wells Fargo & Co., as well as $75 million of first-lien term loans and a $100 million second-lien loan, according to data compiled by Bloomberg.
The second-lien piece pays interest at 10 percentage points more than the London interbank offered rate with a 1 percent floor on the lending benchmark, the data show.
RadioShack is turning to the leveraged loan market for funding as unprecedented demand this year for floating-rate debt has helped companies borrow $865 billion. Issuance of high-yield, high-risk loans in 2013 surpasses the $772 billion arranged in the first 10 months of 2007, the year companies received a record $899 billion, Bloomberg data show.
“The loan market is good, but not indiscriminate,” said Jonathan Insull, a New York-based money manager at Crescent Capital Group, which oversees $13 billion of speculative-grade debt. “People are still concerned about credit quality.”
GE Capital, the lending arm of General Electric Co., is arranging the retailer’s new loans, the person with knowledge of the refinancing said.
RadioShack’s 6.75 percent senior unsecured bonds due in 2019 traded at 68 cents on the dollar on Oct. 28 to yield 15.6 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes are down 6.6 cents since Oct. 21, the day before the company reported that losses widened in third quarter, the data show.
During the three months through Sept. 30, RadioShack had a $98.4 million loss before interest, taxes, depreciation and amortization costs are deducted, according to data compiled by Bloomberg.
Under a revolver, money can be borrowed again once it’s repaid; in a term loan, it can’t.