Lender, hedge fund face off over sale of RadioShack stores

Salus Capital Partners and a team of liquidators have proposed selling off all of RadioShack’s assets.
Salus Capital Partners and a team of liquidators have proposed selling off all of RadioShack’s assets. Star-Telegram

A legal brawl between lenders erupted in bankruptcy court Wednesday on the eve of a court hearing to consider results of an auction of RadioShack Corp. assets held this week.

Salus Capital Partners, which provided a term loan to the Fort Worth-based consumer electronics retailer in 2013 and then blocked the company’s plan to close hundreds of stores, urged the bankruptcy judge not to approve the sale of more than 1,700 stores to the hedge fund Standard General, alleging that its bid was “fundamentally flawed and unfair.”

In its court filing, Salus claimed that Standard General submitted a series of bids over several weeks that “became progressively worse” and that its own rival bid, submitted with a team of liquidators, would provide far more cash for creditors.

In response, Standard General called the claims “completely without merit” and said the court should reject the “last minute and out-of-the-blue effort” by Salus to thwart the auction.

“Salus’ machination jeopardizes the only opportunity to create a continuing business from a company that is currently under the protection of this court,” its filing said. The hedge fund said as many as 9,000 jobs would be saved under its proposal.

The two sides continued with additional filings this morning, before the start of the court hearing.

Salus said RadioShack’s push to sell assets resulted in an “extraordinarily expedited schedule” designed to “depress competition” and amounts to “auction by ambush.” Salus said RadioShack gave it just 21 minutes’ notice that the auction would reconvene at 12:30 a.m. today.

RadioShack dismissed the competing offer in its Thursday filing.

“Even a cursory review of Salus’ bid reveals that Salus is providing no cash consideration in connection with its bid,” the company said, adding that the Standard General plan now has the support of Cerberus Capital Management, which teamed with Salus on the $250 million term loan.

Separately, 22 states joined with Texas in opposing RadioShack’s plan to sell personal data on 117 million customers. Last month, RadioShack proposed to sell a list of the names, phone numbers, e-mail addresses and physical addresses of its customers, as well as information on some customers’ shopping habits, as part of its bankruptcy sale.

In a statement, Texas Attorney General Ken Paxton said the protection of private, personal information is of growing importance to the people of Texas.

“RadioShack gave customers explicit assurances it would not sell their personal information, and that company’s attempts to sell this data would not only be a direct violation of the terms of its own privacy policies, but also a clear violation of Texas law,” Paxton said. “We will vigorously fight to protect consumers’ personally identifiable information.”

U.S. Bankruptcy Judge Brendan L. Shannon was scheduled to take up the matters at a hearing today in Wilmington, Del.

On Tuesday, it appeared that Standard General had prevailed in a bid for the assets of bankrupt electronics retailer, with a proposal to buy 1,723 RadioShack store leases, with inventory the retailer valued at $129.8 million. The hedge fund has said it has a deal with Sprint to take space in most of the stores and continue to operate them under a co-branding agreement.

Salus claimed that Standard General’s bid would include a cash contribution of only $16.4 million, compared with $271 million offered by Salus and its liquidation partners. Standard General would trade its debt for the stores, but Salus has challenged the amount of debt it has available to do so.

RadioShack filed for Chapter 11 bankruptcy protection in February.

This report includes material from Bloomberg News.

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