Radio Shack’s (NYSE:RSH) Unpredictable Future
Radio Shack (NYSE:RSH), formerly known as Tandy Corporation is an American franchise of electronic retail outlets. The company had been doing well for itself until it hit deep waters in the last few years. The main reason for its problems is the company’s ongoing battle with its lenders. The battle whether Radio Shack (NYSE:RSH) can close down its 1,100 locations seems to be over. That’s 20% of its 5200 US locations as well as 900 franchises. It seems that the loans are the only thing of value left for Radio Shack (NYSE:RSH), once they are withdrawn the company will go downhill rapidly, which means the value of the stock would hit $0, which is bad news for its shareholders. At this point the company’s market cap has already gone down to $74 million.
Radio Shack’s (NYSE:RSH) management claims that its lenders demands are wrong and selfish. However this statement doesn’t do the company any good at this point and the management seems to be weak and has no leverage, at least for the time being. It also seems difficult to cut a deal with the lenders right now, leaving no opportunity for Radio Shack (NYSE:RSH) to hope for a turnaround in the holiday season.
According to Radio Shack’s (NYSE:RSH) CEO Joe Magnacca, these are fragile times for Radio Shack (NYSE:RSH) and the lenders know it. Instead of helping the company out in a turnaround, they are contributing at making the situation more and more difficult. They seem to be standing in the way of company’s progress especially during the holiday season when the company is hoping to get the loans off. Radio Shack (NYSE:RSH) has already paid $35 million in interest payments and fee on these loans.
The fingers are being pointed at Salus Capital Partners, which are a unit of Harbinger Group and they hold in their hands a term loan facility worth $250 million without which Radio Shack (NYSE:RSH) is crippled. It seems that the lenders hold all the cards and they are pursuing options to increase their financial yield. For Radio Shack (NYSE:RSH) this could be the scenario that may lead to bankruptcy. The dispute could be resolved in court but that could take months and by then it might be too late for Radio Shack (NYSE:RSH).
Even though Radio Shack (NYSE:RSH) made a statement back in June that it has enough cash give the company another 12 months but that depended on aggressive sales; however sales have fallen dramatically for nine consecutive quarters. By September, Radio Shack (NYSE:RSH) made a public announcement that the company may just might have to file for bankruptcy as it won’t be able to finance its operations, unless the company is sold, restructured or comes into immediate cash and that too in large figures.
Radio Shack (NYSE:RSH) for the time being sees not potential investors and hopes to get no help from its lenders. The company’s only chance of survival is a cash miracle that will help it to pay back its loans and think about recovery.