RadioShack Corp., the electronics chain trying to stave off bankruptcy, reached an agreement with a consortium led by Standard General LP to refinance about $590 million of loans to restock inventory ahead of the holidays, a person familiar with the matter said.
Standard General, a New York-based hedge fund, will lead a group of lenders to refinance debt outstanding under a $535 million asset-backed revolving credit line from GE Capital, the lending arm of General Electric Co., said the person, who asked not to be identified because the negotiations are private. The pact also includes refinancing of some additional debt, according to the person.
The move may provide RadioShack with enough of a financial cushion to last through the crucial year-end shopping season. Still, it doesn’t change the long-term picture for the struggling retailer, said Anthony Chukumba, an analyst for BB&T Capital Markets in New York. RadioShack has posted 10 straight quarters of losses, hurt by competition from e-commerce sites and discount retailers.
“This is a stopgap measure,” said Chukumba, who has a hold rating on the shares. “It will get them through the 2014 holidays. This does not in any way, shape or form guarantee their long-term viability.”
RadioShack shares jumped as much as 67 percent to $1.65 in early trading after Bloomberg News reported on the agreement. Before today’s gain, the stock had lost 62 percent of its value this year.
Standard General said in a filing last month that it was working to improve RadioShack’s liquidity ahead of the holiday season. The fund, RadioShack’s largest investor, also entered into a standstill agreement lasting until June 2015 that prevents it from taking over the board or proposing an acquisition or restructuring without RadioShack’s consent.
The refinancing gives Fort Worth, Texas-based RadioShack access to more cash and greater flexibility, since the current debt agreement restricts how much money it can draw from the revolver, according to a Dec. 13 filing with the U.S. Securities and Exchange Commission. It also may provide the retailer with enough leeway to close a larger number of underperforming stores, helping the company burn less cash.
RadioShack creditors blocked a plan earlier this year to shut 1,100 stores, forcing the retailer to limit the closings to as many as 200. Officials at RadioShack and Standard General didn’t respond to messages seeking comment outside normal business hours.
Standard General emerged as a potential savior for the retailer in August, when Bloomberg reported that the hedge fund was in financing talks. The firm previously orchestrated a lifeline for American Apparel Inc., another troubled retailer.
RadioShack Chief Executive Officer Joe Magnacca has been remodeling stores and revamping its product lineup in a bid to revive sales. The former Walgreen Co. executive, who took over last year, brought in a new leadership team and has outlined what he calls the “five pillars” of a turnaround, including boosting efficiency and repositioning its brand.
So far, the plan hasn’t reversed RadioShack’s decline. Comparable-store sales -- considered a key gauge of performance -- fell about 20 percent last quarter. The 93-year-old company has only reported one quarter of positive same-store sales in the past three years.
RadioShack said last month that it has liquidity of $182.5 million, including $30.5 million in cash. Without reaching a financing agreement, “we may not have enough cash and working capital to fund our operations beyond the very near term, which raises substantial doubt about our ability to continue as a going concern,” the company said.
RadioShack shares have mostly traded under $1 in recent months, prompting the New York Stock Exchange to notify the company in July that it was out of compliance with trading requirements. At least two analysts set $0 price targets on the stock.
RadioShack began in 1921 as a mail-order retailer in Boston that catered to amateur ham-radio operators and maritime communications officers. It expanded into a wider range of electronics, and by the 1980s was once seen as a destination for personal computers, gadgets and components that were hard to find elsewhere. In recent years, competition from Wal-Mart and an army of e-commerce sellers has hurt customer traffic.