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RadioShack To Get Interim Bankruptcy Loan

Author: Joel R. Glucksman|February 26, 2015

After filing for protection under Chapter 11 of the bankruptcy law, ailing electronics retailer RadioShack is set to take out an interim bankruptcy loan, sell a number of its stores, and pay certain of its key insiders and employees a healthy parting bonus.

RadioShack To Get Interim Bankruptcy Loan

After filing for protection under Chapter 11 of the bankruptcy law, ailing electronics retailer RadioShack is set to take out an interim bankruptcy loan, sell a number of its stores, and pay certain of its key insiders and employees a healthy parting bonus.

After almost a century in business, the company’s closing marks the end of an era.

RadioShack filed a voluntary petition for Chapter 11 bankruptcy protection on Feb. 5, marking the end of 94 years in business, according to TechCruch. The retailer had been struggling for years in the face of a number of business model problems.

As many have pointed out, the switch to the Internet for small electronics purchases served to greatly diminish the retailer’s market share. RadioShack attempted a small pivot, orienting its business toward mobile devices, but failed to transform itself into a major destination for these products. As TechCruch concluded, this move may have also served to alienate the retailer’s “radio/homebrew/DIY geek” customer base as well. The company devoted significant efforts over the last few years to coaxing these customers into returning – some stores included a dedicated Arduino section – but ultimately to little avail.

RadioShack Corp reported losses in the last 11 consecutive quarters, demonstrating just how dire the company’s financial situation is, Reuters reported. In its Chapter 11 filing, RadioShack listed assets of $1.2 billion – much of which is likely tied up in stores – and liabilities of $1.39 billion.

Interim bankruptcy loan

On Feb. 9, the electronics retailer got court approval to borrow $10 million to support its operations while it waits for bidding to start on its best-performing stores, according to a separate Reuters article. Lawyers for RadioShack and its creditors came to an agreement that modified the interim loan – originally proposed at $14 million – after some creditors objected to its terms. Dissenters argued that the loan would lock RadioShack into a hurried sale to one of the interim loan providers, Standard General.

The company has an initial deal to sell up to 2,400 of its 4,100 stores to an affiliate of Standard General, the news source noted. Standard General is a well-known hedge fund and RadioShack’s largest shareholder. However, this agreement is still subject to higher bids.

The retailer is also requesting the right to borrow up to an additional $285 million to fund its trip through bankruptcy, according to Reuters. A lender group led by DW Partners has already agreed to extend this loan, but U.S. Bankruptcy Judge Brendan Shannon will first need to approve this request at a Feb. 20 hearing. Shannon will also consider proposed procedures for bidding on RadioShack’s assets.

In the mean time, RadioShack is in the process of closing approximately 1,100 of its worst performing stores, the news source explained. The company attempted to close these stores at an earlier date, but was barred from doing so because of agreements with lenders. Now that it has declared bankruptcy, it no longer has to face this roadblock. Standard General has also said that it is working with cellphone carrier Sprint to open mobile phone sales centers in at least 1,750 of the RadioShack stores that it is planning to buy.

Still paying bonuses

Interestingly, RadioShack has proposed setting aside up to $3 million to pay bonuses, The Wall Street Journal reported. Two million of this would go toward eight executives, whom the company says helped to boost the sale price – undisclosed in court documents – by $30 million. Another 30 employees would be eligible for part of the remaining $1 million under a retention plan to keep key staff in place. These bonuses wouldn’t be paid until after the sale is finalized, ensuring that the retailer doesn’t lose “valuable institutional knowledge.”

Under section 503 of the Bankruptcy Code, a debtor cannot make special payments to “insiders”, including directors and officers, to induce them to remain with the company, unless the court finds that (i) the recipient has a “bona fide job offer” from another company, and (ii) is “essential to the survival” of the debtor.

RadioShack’s bankruptcy comes on the heels of years of falling sales. For the better part of a century, the company was at the forefront of the consumer electronics market, but as new industry members entered to arena, this old dog couldn’t keep up. It will be missed.

RadioShack To Get Interim Bankruptcy Loan

Author: Joel R. Glucksman

After almost a century in business, the company’s closing marks the end of an era.

RadioShack filed a voluntary petition for Chapter 11 bankruptcy protection on Feb. 5, marking the end of 94 years in business, according to TechCruch. The retailer had been struggling for years in the face of a number of business model problems.

As many have pointed out, the switch to the Internet for small electronics purchases served to greatly diminish the retailer’s market share. RadioShack attempted a small pivot, orienting its business toward mobile devices, but failed to transform itself into a major destination for these products. As TechCruch concluded, this move may have also served to alienate the retailer’s “radio/homebrew/DIY geek” customer base as well. The company devoted significant efforts over the last few years to coaxing these customers into returning – some stores included a dedicated Arduino section – but ultimately to little avail.

RadioShack Corp reported losses in the last 11 consecutive quarters, demonstrating just how dire the company’s financial situation is, Reuters reported. In its Chapter 11 filing, RadioShack listed assets of $1.2 billion – much of which is likely tied up in stores – and liabilities of $1.39 billion.

Interim bankruptcy loan

On Feb. 9, the electronics retailer got court approval to borrow $10 million to support its operations while it waits for bidding to start on its best-performing stores, according to a separate Reuters article. Lawyers for RadioShack and its creditors came to an agreement that modified the interim loan – originally proposed at $14 million – after some creditors objected to its terms. Dissenters argued that the loan would lock RadioShack into a hurried sale to one of the interim loan providers, Standard General.

The company has an initial deal to sell up to 2,400 of its 4,100 stores to an affiliate of Standard General, the news source noted. Standard General is a well-known hedge fund and RadioShack’s largest shareholder. However, this agreement is still subject to higher bids.

The retailer is also requesting the right to borrow up to an additional $285 million to fund its trip through bankruptcy, according to Reuters. A lender group led by DW Partners has already agreed to extend this loan, but U.S. Bankruptcy Judge Brendan Shannon will first need to approve this request at a Feb. 20 hearing. Shannon will also consider proposed procedures for bidding on RadioShack’s assets.

In the mean time, RadioShack is in the process of closing approximately 1,100 of its worst performing stores, the news source explained. The company attempted to close these stores at an earlier date, but was barred from doing so because of agreements with lenders. Now that it has declared bankruptcy, it no longer has to face this roadblock. Standard General has also said that it is working with cellphone carrier Sprint to open mobile phone sales centers in at least 1,750 of the RadioShack stores that it is planning to buy.

Still paying bonuses

Interestingly, RadioShack has proposed setting aside up to $3 million to pay bonuses, The Wall Street Journal reported. Two million of this would go toward eight executives, whom the company says helped to boost the sale price – undisclosed in court documents – by $30 million. Another 30 employees would be eligible for part of the remaining $1 million under a retention plan to keep key staff in place. These bonuses wouldn’t be paid until after the sale is finalized, ensuring that the retailer doesn’t lose “valuable institutional knowledge.”

Under section 503 of the Bankruptcy Code, a debtor cannot make special payments to “insiders”, including directors and officers, to induce them to remain with the company, unless the court finds that (i) the recipient has a “bona fide job offer” from another company, and (ii) is “essential to the survival” of the debtor.

RadioShack’s bankruptcy comes on the heels of years of falling sales. For the better part of a century, the company was at the forefront of the consumer electronics market, but as new industry members entered to arena, this old dog couldn’t keep up. It will be missed.

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