RadioShack To Fight Covenant Breach Notice From Salus Unit
RadioShack Corporation (NYSE: RSH) called a claim of covenant breaches on a $250 million loan "wrong and self-serving," and said it would contest the issue.
Before shares were halted around 10:04 a.m. ET, RadioShack traded at $0.773, down 1.3 percent.
The troubled retailer said a majority of lenders under its recapitalization agreement of October 3 have said they will continue to extend credit.
RadioShack said it received the notice from Salus Capital Partners, a unit of Harbinger Group, Inc., claiming covenant breaches under the $250 million term loan provided by Salus and Cerberus Business Finance, a unit of Cerberus Capital Management.
Salus appears to be "trying to manufacture a problem during the critical Holiday shopping season," Chief Executive Joseph Magnacca said.
Magnacca accused Salus of unreasonably blocking efforts by RadioShack to close 1,000 of its more than 4,000 outlets and called on the lender to rescind its notice and related demands.
The company hopes to complete recapitalization steps announced in October that would result in the conversion of at least $120 million of debt into equity.
In September, RadioShack had $30.5 million in cash, down from $440 million a year earlier.
Magnacca said the company has taken recent steps expected to cut costs by $74 million. Additional cost-cutting to save an additional $200 million are expected to be announced with its upcoming quarterly earnings release, Magnacca said.
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