A legal fight among creditors in the RadioShack bankruptcy case could determine whether more than 1,700 stores will be sold next week to a hedge fund or the 94-year-old Fort Worth-based company is liquidated and shut down.
A group of secured lenders has filed a lawsuit aimed at determining whether hedge fund Standard General, a 10 percent shareholder and secured creditor, can use more than $111 million in secured debt to buy and continue operating 1,723 RadioShack stores.
At a court hearing on Thursday in Wilmington, Del., an attorney for the Fort Worth-based electronics retailer said the company had received bids including a “solid” liquidation proposal for its assets and that an auction set for Monday will go forward as planned.
The Wall Street Journal reported that the Standard General bid was valued at $145.5 million, less than earlier estimated, and represents the only chance to keep the retailer operating. A court hearing on the proposed sale is scheduled March 26.
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The legal challenge, filed by Salus Capital Partners as agent for lenders on a $250 million term loan dating from December 2013, lays out the company’s recent complicated financial history.
According to Salus, its term loan was accompanied by $535 million asset-backed revolving credit and a $50 million term loan, both supplied by GE Capital.
While all the loans technically have first liens, they had different pecking orders with regard to collateral. The GE loan got first dibs on accounts receivable and inventory. The Salus loan was secured by a first call on fixed assets and intellectual property.
As told by Salus, Standard General bought the GE loans in October and converted $232 million of revolving loans into a term loan. Later, $129 million was repaid, leaving $103 million outstanding on the term loans.
Citing an agreement between the lending groups, Salus asked the bankruptcy judge to rule that the Standard General term loans are subordinated to its loans. Salus also said the judge should require Standard General to pay the $129 million to the other group.
Finally, Salus said only $111 million of the Standard General loans still has first-lien status on current assets. Salus said that’s the maximum Standard General can use to buy the stores next week.
Salus won’t be Standard General’s only opponent. The official creditors’ committee is working up opposition also.
If Standard General succeeds, it will co-brand the stores with wireless carrier Sprint.
The Chapter 11 petition by RadioShack listed assets of $1.2 billion and debt of $1.39 billion.