RadioShack Corporation RSH today announced that it has entered into definitive agreements to
restructure a portion of its existing debt, providing additional near-term
liquidity and serving as a first step in a stronger foundation for the
Company's continued business transformation.
Standard General LP and certain other investors have replaced GE Capital as
lead lender under RadioShack's senior secured asset based credit facility
("ABL Facility") which will allow immediate access to additional liquidity.
Other investors, including RadioShack shareholders Standard General and
Litespeed Management LLC, are providing $120 million to be used to cash
collateralize letters of credit for the Company. In the coming months, this
$120 million is expected to be converted into equity. Current shareholders
will have the opportunity to participate in a rights offering at same
conversion price.
"We are pleased to complete this important step, which we believe positions us
to continue to progress our operational turnaround," said Joe Magnacca,
RadioShack's chief executive officer. "We recognize that we will need to
address constraints under our existing term loan in order to undertake a store
base consolidation program and pursue other measures to reduce our cost
structure. This amended ABL Facility provides time to pursue a longer-term
restructuring. To that end, we are in constructive discussions with our term
lenders, led by Salus Capital, toward additional steps to recapitalize
RadioShack.
"We look forward to continuing to serve our customers with differentiated
products and an upgraded shopping experience as we move into the Holiday
season."
Today's agreements include two key elements:
o ABL Facility – Standard General and certain other investors have acquired
the loans and agreed to changes affecting the credit availability
under RadioShack's existing ABL Facility. As a result, RadioShack
believes that it will have sufficient credit capacity under the ABL
Facility to fund its inventory build for the Holiday season. Because
borrowing availability under the amended ABL Facility changes in March
2015, the Company expects to seek to refinance the facility by that time.
In addition, the amended ABL Facility will be required to be refinanced if
the rights offering described below is not completed by March 15, 2015.
o New equity – The $120 million investment is expected to be converted into
equity securities representing (together with related fees payable in
equity securities) not less than 50% of the Company's outstanding equity
securities upon satisfaction of certain conditions. These conditions
include the modification of a supplier contract, at least $100 million of
available cash and borrowing capacity at January 15, 2015, development of
a fiscal 2016 plan satisfying certain requirements and the completion of a
rights offering to existing RadioShack shareholders to purchase equity
securities at a price of $0.40 per common share equivalent.
The percentage of equity securities that Standard General and other investors
will own as a result of this transaction will depend upon the level of
participation, if any, of existing shareholders in the rights offering. If no
shares were purchased in the rights offering, existing shareholders would own
20% of RadioShack's equity securities. The voting rights of any person or
group acquiring equity securities in the transaction would be limited to 34.9%
of the total voting power of the Company's voting stock so long as greater
voting power would accelerate Company debt.
If the $120 million investment is converted into equity, the Board will be
reconstituted to consist of the Company's CEO, two independent directors
selected by RadioShack and four individuals nominated by Standard General.
The new directors must be approved by the Company's corporate governance
committee. At least two of these directors must be independent.
RadioShack intends to initiate the rights offering late this year or in early
2015. There can be no assurance that the rights offering will be completed or
that the other conditions to the equity conversion will be satisfied, nor can
the Company be certain that it will be able to refinance borrowings under the
amended ABL Facility by March 2015.
NYSE EXEMPTION
The stock issuances described above would normally require approval of
RadioShack's shareholders pursuant to the Shareholder Approval Policy of the
New York Stock Exchange (the "Exchange"). The audit and compliance committee
of RadioShack's Board of Directors determined that the delay that would result
from securing shareholder approval prior to the completion of these stock
issuances would seriously jeopardize the financial viability of RadioShack.
Because of that determination, the audit and compliance committee, pursuant to
an exception provided in the Exchange's shareholder approval policy, expressly
approved RadioShack's omission to seek the shareholder approval that would
otherwise have been required under that policy. The Exchange has accepted the
Company's application of the exception.
In conjunction with the rights offering, RadioShack intends to initially issue
equity securities that would be convertible, subject to the satisfaction of
all applicable conditions, into at least 400 million shares (and up to 700
million shares) of common stock. In reliance on the Exchange's shareholder
approval exception, RadioShack will notify its shareholders of its intention
to issue the shares without seeking their approval at least ten days prior to
the issuance of the shares.
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