RadioShack Corporation (NYSE:RSH) said it would “vigorously contest” the covenant breaches claims of Salus Capital and Cerberus Business Finance under the $250 million Term Loan Facility provided by both lenders.

RadioShack to Fight the Covenant Breaches Claim by Harbinger's Unit

Salus Capital is a unit of Harbinger Group Inc (NYSE: HRG) while Cerberus Business Finance is a unit of Cerberus Capital Management.

According to RadioShack Corporation (NYSE:RSH), the claims of the two lenders were primarily related to the recapitalization and investment agreement as well as the amendment to the company’s ABL credit facility.

The lenders holding a majority of the loans and commitments under its ABL credit facility expressed their intention to continue to extend credit to RadioShack Corporation (NYSE:RSH) in accordance with the terms of the credit facility.

RadioShack says the claims were “wrong and self-serving”

RadioShack Corporation (NYSE: RSH) said the claims of Salus Capital and Cerberus Business Financial are “wrong and self-serving.”

In a statement, Joe Magnacca, CEO of RadioShack Corporation (NYSE:RSH) said, “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.  We will maintain our focus on operating our business as we move forward.”

Magnacca added that the company’s current term lenders repeatedly blocked its efforts to accelerate and intensify its turnaround and make smart decisions for its business.

According to him, the company’s current term lenders were prompted by their “narrow self-interest,” and are trying to create a problem during the critical holiday shopping season in an effort to get out of a loan, which they already profited more than $35 million in fees and interest payments.

“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 Magnacca.

RadioShack still waiting for consent to close 1,100 stores

Magnacca emphasized that the claims of the company’s current term lenders are disturbing in light of its meaningful steps under its turnaround plan and recapitalization announced in October.

RadioShack Corporation (NYSE:RSH) said its turnaround and recapitalization initiatives will result in the conversion of at least $120 million of debt into equity if conditions are satisfied.

The company said its additional cost-reduction measure, which involves the closure of around 1,100 stores has been properly communicated with its term lenders.

RadioShack Corporation (NYSE:RSH) said its request for the store closures were refused by the lenders unless it paid significant fees and prepaid a substantial portion of the debt and agreed to other covenants and concessions.

RadioShack Corporation (NYSE:RSH) said its request to close a smaller but significant number of the same stores were also refused. The company repeated its request for the closure of the 1,100 stores, but it is still waiting for the approval of the term lenders.

“It appears to us that the term lenders seek only to advance their particular interests at the expense of all other RadioShack stakeholders and will oppose any common sense business move requiring their consent unless the company agrees to their exorbitant demands,” said Magnacca.