The Wall Street Journal reported on Monday, January 12th that beleaguered retailer RadioShack had been offered $500 million in ongoing financing from one of its creditors if it decided to declare bankruptcy. Salus Capital Partners has offered RadioShack Corp. $500 million in bankruptcy financing, according to WSJ sources. Analysts note that this type of bankruptcy financing will increase the lender’s influence if the electronics retailer does end up in Chapter 11.
The loan offer from Salus was not solicited by RadioShack. The WSJ sources say it is a debtor-in-possession loan, which firms can use to fund their operations in bankruptcy. The sources also noted that the offer expires Thursday. This new loan would a replace a $585 million financing package the firm accepted in the fourth quarter of 2013, which had several credit lines dependent on the current value of RadioShack assets.
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Analysts note that Salus has had a contentious relationship with RadioShack over the last couple of years. While it led a $250 million loan for the retailer in late 2013, Salus has refused to allow store closures that would allow the company to reduce to a more manageable size.
In the fourth quarter of last year, Salus claimed RadioShack had defaulted on the loan. RadioShack has denied the allegation.
RadioShack has not declared bankruptcy yet
Of note, RadioShack hasn’t said it will seek bankruptcy protection, but it’s clear the consumer electronics retailer is running out of cash following three consecutive years of losses. The firm warned that it could be forced into bankruptcy court if it could not get further loans or get relief from lenders that are blocking its effort to close hundreds of stores, back in September.
RadioShack had just $19.3 million of borrowing availability remaining under its original credit line as of November 1st.
Many analysts have commented they believe some kind of a debt restructuring of RadioShack is likely in the future. “There continues to be a high likelihood of a bankruptcy filing,” Fitch Ratings recently noted in a client letter.