RadioShack files for Chapter 11

April 2015 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

RadioShack Corporation, along with a number of its US subsidiaries filed voluntary petitions for relief under Chapter 11 of the US Bankruptcy Code in the US Bankruptcy Court for the District of Delaware. In February 2015, RadioShack, a “leading retailer focused on connecting customers with personalised solutions and discovering what’s possible through the latest in consumer technology”, signed an asset purchase agreement with General Wireless Inc., an affiliate of Standard General L.P. The agreement means that General Wireless has committed to acquire between 1500 and 2400 of RadioShack’s US company-owned stores.

The Chapter 11 filing is intended to effectuate this transaction and facilitate an orderly sale of RadioShack assets. RadioShack currently has approximately 4000 company owned stores in the US. The company has more than 1000 dealer franchise stores in 25 countries. RadioShack stores operated by its Mexican subsidiary, as well as its Asia operations, are not included in the Chapter 11 filing or any other agreements announced during the process. General Wireless has agreed in principle on terms with telecommunications company Sprint Corporation to establish a new dedicated mobility ‘store within a store’ retail presence in up to 1750 of the acquired stores.

This agreement-in-principle is subject to negotiation of definitive documentation as well as court approval. “We’ve proven that our products and new offers drive traffic to stores, and this agreement would allow Sprint to grow branded distribution quickly and cost-effectively in prime locations,” said Sprint CEO Marcelo Claure. “Sprint and RadioShack expect to benefit from operational efficiencies and by cross-marketing to each other’s customers.”

In addition, RadioShack has filed a motion with the Court to proceed with the closure of the remaining underperforming company-owned stores under an agreement with Hilco Merchant Resources. A list of the stores slated for closure will be posted in the near future on the restructuring information section of the RadioShack company website. Stores that are closing are expected to sell remaining inventory.

RadioShack has made customary first-day motions with the Bankruptcy Court intended to support the continuation of its day-to-day operations for customers, employees, vendors and suppliers, and other business partners during the restructuring. As part of that, it is seeking Court approval to continue employee wages and certain benefits and honour certain customer programs.

RadioShack has also secured a commitment for approximately $285m in debtor-in-possession financing (DIP) from its current ABL lender group, led by DW Partners, LP. The DIP is intended to provide it with liquidity during the sale process. The DIP funding includes a roll up of RadioShack’s prepetition revolver, letters of credit and FILO facility. In addition, the facility will provide up to $20m in incremental borrowing capacity.

Pursuant to the auction process RadioShack has filed for approval by the Court, all qualifying parties will have an opportunity to submit offers for evaluation through a Court-supervised competitive bidding process. Any sale will be subject to Court approval and other closing conditions. There can be no assurance that a sale will be consummated at the conclusion of this process.

As part of the Chapter 11 process, other parties will have an opportunity to submit offers for RadioShack’s assets in a court-approved process and discussions are already underway in this regard. The sale agreement is subject to court approval and other conditions. RadioShack’s foreign subsidiaries and its franchisee-owned stores are not included in the filing.

RadioShack’s legal adviser throughout the Chapter 11 process has been Jones Day. The company’s investment banker has been Lazard Freres while the financial advisers have been The MAEVA Group and FTI.

Commenting on the Chapter 11 process, Joe Magnacca, RadioShack’s chief executive, said “These steps are the culmination of a thorough process intended to drive maximum value for our stakeholders.”

Fraser Tennant