According to knowledgeable sources who spoke to Bloomberg, RadioShack Corporation (NYSE:RSH) has entered in to discussions with major shareholder Standard General LP regarding a rescue financing package to help the flailing retailer stave off a bankruptcy filing.

RadioShack

Standard General, a hedge fund that has provided financing for American Apparel Inc. (APP), is considering getting help for RadioShack by issuing debt or equity, said the sources. The firm is working closely with RadioShack management to come up with a plan to avoid Chapter 11 bankruptcy.

Bloomberg’s sources also mentioned that Standard General was looking to refinance RadioShack’s $250 million second-lien term loan, owned by Salus Capital Partners LLC and Cerberus Capital Management LP..

RadioShack bankruptcy looming?

RadioShack Corporation (NYSE:RSH) needs cash. The firm will face a cash crunch within 12 months, according to Moody’s Investors Service. The iconic Fort Worth, Texas-based electronics retailer lost $98.3 million in the three months ending May 3, and same-store sales plunged 14%. The share price of RadioShack is down almost 75% in 2014.

CEO Joe Magnacca has begun executing his plan to remodel RadioShack stores and revamping its product lineup. However, retail industry analysts are becoming increasingly worried that the timing is just not right for a turnaround.

Credit traders are also showing heightened concern that RadioShack is facing bankruptcy. The cost to insure against default within six months by RadioShack Corporation (NYSE:RSH) soared as high as 60.5% on Aug. 12, according to data provider CMA. The cost of default protection was only 44.5% as of Aug. 26.

Trying to close stores

However, getting a financial lifeline to pay down debt could allow the firm to close a larger number of underperforming stores, a critical aprt of the turnaround effort. RadioShack creditors blocked a plan to close down 1,100 stores this spring, so the retailer could only shutter around 200 locations.

Neither RadioShack, Salus or Standard General were willing to comment on the situation.

RadioShack shares climbed 19% to 86 cents on Tuesday after news of the potential Standard General rescue deal.