Hedge fund BlueCrest Capital Management is pushing RadioShack Corp. (RSH:US) to repay lenders who blocked the struggling retailer’s store-closing plans, and may help fund such a move, according to a copy of a letter obtained by Bloomberg News.
BlueCrest, run by billionaire Michael Platt, said in the letter that the fund is a shareholder and unsecured debtholder of RadioShack’s and could help provide financing along with other creditors. BlueCrest supports the company’s attempt to shut stores, which would help stem its cash burn, according to the letter.
The letter shows that RadioShack’s creditors and shareholders are increasingly frustrated by the blocking of Chief Executive Officer Joe Magnacca’s plan to close 1,100 stores as a lifeline to the struggling electronics retailer. Lenders blocked the plan, forcing RadioShack to limit closings to as many as 200 instead.
“The company’s deteriorating liquidity profile and dismal earnings give very little cushion” to “execute its turnaround strategy over the next several quarters,” Mickey Chadha, a senior analyst at Moody’s Investors Service, said in a July 29 report.
Without a capital infusion, RadioShack will probably face a cash crunch by the quarter ending Nov. 1, 2015, Moody’s said in the report. While the company has no debt coming due until 2018, operating losses will hurt liquidity and hobble its comeback, according to the credit-ratings company. The continued cash burn could also force suppliers to seek financial support, it said.
RadioShack shares (RSH:US) fell 4.5 percent to 62 cents at 11:56 a.m. in New York, from 65 cents at yesterday’s close.
BlueCrest’s letter was addressed to Magnacca, who joined the retailer in February 2013 to lead a comeback, and Chief Financial Officer John Feray. The copy of the letter obtained by Bloomberg News wasn’t dated.
BlueCrest is concerned that secured creditors’ interests aren’t aligned with the rest of the company’s stakeholders, according to the letter.
Ruth Pachman, a Kekst & Co. spokeswoman for RadioShack, declined to comment. Ed Orlebar, a spokesman at BlueCrest, didn’t immediately respond to e-mails seeking comment after hours.
Harbinger Capital Partners LLC’s Salus Capital Partners LLC unit arranged a $250 million second-lien loan due in 2018 for RadioShack last year. GE Capital also arranged a $535 million asset-backed revolver maturing in 2018 last year, according to data compiled by Bloomberg. Both loans require lender (RSH:US) approval to close more than 200 stores, according to credit agreements.
Brian Rudy, a spokesman for Salus Capital, didn’t immediately comment.
RadioShack is continuing conversations with lenders about store closings, management said on the company’s June 10 earnings call. The Fort Worth, Texas-based chain’s loss widened in the first quarter to $98.3 million from $28 million a year earlier. Sales slid 13 percent to $736.7 million in the period, which ended May 3, marking the ninth straight quarterly decline.
RadioShack’s stock has tumbled 76 percent this year as the retailer, which runs more than 5,000 stores, has suffered from increasing competition from larger peers such as Best Buy Co. and online merchants.
(An earlier version of this story corrected the day of the share decline in the final paragraph.)
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