RadioShack Rejects Lender Claim That It Has Failed to Meet Loan Terms

DALLAS (The Dallas Morning News/TNS) -

RadioShack Corp. said Tuesday it has received a notice from its lender saying the retailer has failed to meet required covenants under its $250 million term loan.

RadioShack said it believes the claims are “wrong and self-serving.” Salus Capital Partners and Cerberus Business Finance entered into a new agreement with RadioShack on Oct. 3.

“We intend to do everything in our power to prevent them from using what we see as unfounded technical arguments to benefit unjustly at the expense of other creditors, the hundreds of communities we serve, the many other businesses we support and the jobs of more than 25,000 hard-working people,” said RadioShack CEO Joe Magnacca in a prepared statement.

The claims relate to the recapitalization and investment agreement and amendment to the term loan.

The Fort Worth, Texas, consumer-electronics chain said it intends to “vigorously contest the claims.”

“We will do everything we can to assure that these claims do not distract us from our ongoing efforts to rationalize our capital structure and transform our business,” Magnacca said. “We will maintain our focus on operating our business as we move forward.”

Lenders holding a majority of the loans under the credit facility have told the company that they intend to continue to extend it credit under the terms of the loan, RadioShack said.

“This is particularly disturbing in light of meaningful steps we have taken in our turnaround plan, as well as the recapitalization steps announced in October,” Magnacca said. If RadioShack meets certain performance measures, the lenders will be able to convert at least $120 million of debt into equity.

Earlier this year, the company’s lenders stopped RadioShack from closing 1,100 unprofitable stores. RadioShack said by doing so it can focus on its profitable stores. It estimated that earnings before taxes and other expenses would increase $83 million with the closures and another $87 million would come from inventory.

RadioShack asked its lenders to allow it to close stores again in late October, and was rejected.

RadioShack is expected to post its third consecutive annual loss. The company opened at 8 a.m. on Thanksgiving to try to get a jump on the year-end shopping season.