From Perennial (Rumored) LBO Candidate To Imminent Restructuring: How The Unmighty Radioshack Has Fallen

There was a time when one couldn't spend an hour without some moronic rumor of a Radioshack LBO popping up. Those time are gone. Instead, as DebtWire reports, the rumor of a takeover has been replaced with the all too unpleasant reality of a corporate restructuring which may or may not end up in Chapter and which likely means the equity is all but wiped out. As DW reports the firm is set to listen to restructuring pitches from the usual restructuring suspects, which means unless someone is crazy enough to do another JCP-type deal (they aren't), the firm's debt is about to be substantially discharged. This usually means a full or at least partial wipe out of the equity tranche below it. "The move to hire a banker to explore a balance sheet fix comes as the struggling electronics retailer faces a string of maturities, escalating cash burn and bloated inventory levels, the sources said. RadioShack first engaged AlixPartners for operational help over a year ago, as previously reported by Debtwire."

Debt Wire has more on the fulcrum issues:

Most pressing on the capital structure front, the stressed borrower faces the 1 August 2013 maturity of its USD 216m 2.5% convertible notes. In 1Q13, RadioShack chipped away at the obligation by repurchasing USD 70.5m of the notes with cash on hand. Back in 3Q12, the issuer inked a USD 100m 11% second lien term loan due 2017 and a USD 50m Libor+ 450bps TL due 2016, both with agent Wells Fargo, to partially buy back USD 88m of the converts


While management has telegraphed it has the resources to address the convert, liquidity is a precious commodity given RadioShack’s cash burn trajectory. At 1Q13 ended 31 March, the issuer held USD 434.3m of unrestricted cash and had USD 384.9m available under its USD 450m asset based revolver due 2016, according to SEC filings.


The Texas-based chain has been the subject of investor scrutiny as it combats margin pressure due to increased competition from online retailer Amazon and big-box heavy hitter Wal-Mart, the sources agreed. During 1Q13, RadioShack’s revenue skidded 7% year-over-year to USD 849m, underpinned by a 5.7% decline in same store sales.


For the three-month period, EBITDA slipped to USD 5m from USD 30m generated in the prior year period, noted a sellsider.


At quarter-end, the issuer’s net leverage catapulted to 7.3x from 0.7x during the prior year period, the sellsider continued. Meanwhile, the electronics seller carries gross leverage of 18.7x based on LTM EBITDA of USD 38m and debt of USD 712m.


For FY13, the issuer is projected to book negative USD 5m of EBITDA, falling far short of the USD 63m recorded in FY12, the sellisder said. By comparison, the store franchise generated north of USD 260m in FY11. More bearish investors peg FY13 EBITDA at negative USD 25m and capital expenditures at USD 70m, added a buysider.

And while an imminent liquidity crunch is unlikely, the slowburn will mean that slowly but surely the firm's debt and hybrid securities will start ticking down to their fairer value... somewhere in the vicinity of 0.

RadioShack’s converts due in August are quoted at around par, said one of the sources. The company’s USD 325m 6.75% unsecured notes due 2019 last changed hands at 73.25 to yield 13.52%, down from around 80 in late May, according to MarketAxess.

Finally, those playing with falling knives and hoping for a big short-covering pop on any good news for the company that has already used up several lifetimes worth of bullish rumors: good luck.


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