Credit analysts say new loans don’t change their view of RadioShack

Posted Wednesday, Oct. 23, 2013  comments  Print Reprints

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A day after RadioShack Corp. confirmed a commitment with banks for $835 million in new loans, a leading credit rating agency and a credit research firm questioned whether the deal will significantly help the struggling company’s liquidity.

Fitch Ratings took more than a glass-half-empty approach to the deal, which includes revolving credit and liquidity for the Fort Worth-based chain, which has $316 million cash.

“The incremental cash liquidity may only serve to offset the higher losses incurred during the second half of the year, leaving the company’s liquidity position unchanged or only modestly improved at the end of 2013 versus Fitch’s prior expectations,” Fitch said.

Beyond 2013, it expects cash flow to bleed red, amounting to “a negative $100 million or more annually, and this will gradually eat into the company’s cash liquidity.”

At CreditSights, analyst James Goldstein said the loans will not provide enough of a liquidity injection to finance CEO Joseph Magnacca’s turnaround strategy, and he sees the additional liquidity as a “risk” for holders of unsecured bonds should RadioShack fail to resuscitate the business.

On Tuesday, RadioShack said it had received commitments for the new debt financing, which will replace $625 million in existing credit and provide additional cash.

Lenders include GE Capital, Salus Capital Partners, CIT Group and Royal Bank of Scotland, the company said, while not providing terms.

The company also reported a $112 million third-quarter loss as sales declined about 10 percent.

On Tuesday, analysts from Janney Capital Markets called the new loan agreements “a game changer.”

Fitch said RadioShack remains in the early stages of expanding more-profitable categories like headphones and portable speakers.

But the rating agency predicted that growth in these areas would be unlikely to offset declines in the chain’s and consumer electronics businesses “for at least the next 12 months.”

On Wall Street, RadioShack stock (ticker: RSH) gained 2 cents to close at $2.91, a day after losing 18 percent.

This report includes material from Bloomberg News.

Barry Shlachter, 817-390-7718 Twitter: @bshlachter

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