RadioShack Corp. (RSH:US), the electronics retailer with seven straight quarterly losses, is doubling borrowing costs with new debt it obtained to help stage a turnaround, according to CreditSights.
RadioShack completed an $835 million, five-year financing, including a $250 million second-lien term loan led by Salus Capital Partners LLC that pays interest at 11 percentage points more than the London interbank offered rate, the company said yesterday in a statement. The deal almost doubles the cost of RadioShack’s term loans to $31 million a year, CreditSights said today in a note.
“While the incremental liquidity buys the company time, it also stands as a risk to recovery for the existing bondholders in the event that the company is unable to get back on its feet,” James Goldstein, a CreditSights analyst, wrote in the note. “At this point, we also view it as a last chance liquidity injection.”
The new financing provides RadioShack with about $200 million of additional liquidity, the Fort Worth, Texas-based company said. The deal includes a $535 million asset-based revolving credit line and a $50 million term loan led by GE Capital, the lending arm of General Electric Co. (GE:US) The term loan was set at 4 percentage points more than Libor. Salus Capital is a middle-market lender owned by billionaire Philip Falcone’s Harbinger Group Inc.
RadioShack retired a $100 million second-lien loan that pays interest at 10 percentage points more than Libor, with a 1 percent floor on the lending benchmark, according to data compiled by Bloomberg. The new financing also replaced $75 million of first-lien term loans with a 4.5 percentage point spread, the data show.
“While turnaround efforts are underway, third quarter results -- including a 10 percent sale plunge and a deep dive into negative Ebitda territory -- showed the depth of challenges the company is facing,” Goldstein wrote in the note.
Maggie Thill, a RadioShack spokeswoman who works for Weber Shandwick, didn’t immediately return a phone call seeking comment on the financing.
RadioShack had a $98.4 million loss before interest, taxes, depreciation and amortization costs are deducted, according to data compiled by Bloomberg.
The company’s 6.75 percent senior unsecured bonds due in 2019 traded at 67.5 cents on the dollar yesterday to yield 15.9 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
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