Shares of RadioShack have jumped more than 20 percent today following a report in The Wall Street Journal that Salus Capital Partners has offered the struggling retailer $500 million in bankruptcy financing.
The company declined to comment on the report, which cited “people familiar with the matter” and said the new debt would replace a financing package the company obtained in late 2013. In morning trading, the stock (ticker: RSH) was up 10 cents at 49 cents a share.
Given RadioShack’s testy relationship with Salus, it’s hard to tell whether this is good or bad news.
This is the same lender that RadioShack has been fighting with for the better part of a year. Salus was among the company’s lenders that essentially blocked a plan laid out by CEO Joe Magnacca last March to close as many as 1,100 underperforming stores by refusing to give consent.
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Instead, the retailer has been limited by the terms of its loan to 200 closures a year. It has more than 4,000 company-owned stores.
The Fort Worth-based company has been flirting with bankruptcy since the fall, when it warned that it might file for Chapter 11 restructuring if it didn’t get new financing. In October, it got a lifeline from two hedge funds, led by Standard General, which acquired an asset-backed line of credit from GE Capital — another lender that opposed the store closing plan — plus $120 million to help it get through the holidays.
But last month, Salus claimed that the new financing deal had violated covenants in its loan with RadioShack. The company went public to defend itself, accusing Salus of acting in “narrow self interest” and saying it would not repay the money.
The clock is clearly ticking. Under the new loan agreement with Standard General, the company must have $100 million in cash or borrowing available by Jan. 15 — that’s Thursday — in order for the hedge funds to convert their debt into equity and solidify their ownership fo the company.
No word yet on how the critical holiday sales season went.