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Fitch Downgrades RadioShack’s IDR to ’D’

February 09, 2015, 07:15 AM
Filed Under: Corporate Ratings

Fitch Ratings has downgraded the Long-term Issuer Default Rating (IDR) for RadioShack Corporation (RadioShack) to 'D' from 'C' following the company's announcement that it has filed Chapter 11. Fitch has also affirmed the 'CCC-/RR2' rating on RadioShack's $250 million secured term loan and has affirmed the company's senior unsecured notes rating at 'C/RR6'.

Fitch has also withdrawn the ratings on the RadioShack's $535 million asset-based facility and $50 million FILO term loan, which have been replaced by a new $285 million debtor-in-possession facility. A full list of rating actions follows at the end of this release.

RadioShack has entered into an asset purchase agreement with an affiliate of Standard General L.P. to acquire between 1,500 and 2,400 of the company's approximately 4,000 U.S. company-owned stores. Standard General has an agreement in principle with Sprint to establish a new dedicated mobility 'store within a store' in up to 1,750 of the acquired stores. The balance of the stores would be closed, though other bidders could submit offers for RadioShack's assets.

RadioShack has entered into a $285 million debtor-in-possession financing from its current ABL lender group, led by DW Partners, L.P. This facility includes a roll-up of the company's prepetition revolver, letters of credit and FILO term loan.

The ratings on the various securities reflect Fitch's recovery analysis, which is based on a liquidation value of RadioShack in a distressed scenario of $500 million as of Nov. 1, 2014. Most of the value comes from inventories, half of which are assumed to be mobile phones which are assigned a liquidation value of 80%, and the balance is other inventories at a liquidation value of 60%. Fitch uses a liquidation value of 30% for receivables to reflect the netting out of estimated payables to the wireless carriers.

The $250 million secured term loan has superior recovery prospects (71% - 90%) and a rating of 'CCC-/RR2'. This loan is secured by a second lien on current assets and a first lien on fixed assets, intellectual property and equity interests in subsidiaries. Fitch expects that the loan could have a recovery at the high end of the range given the value of the underlying collateral.

The $325 million of senior unsecured notes due in May 2019 are rated 'C/RR6', reflecting poor recovery prospects (0% - 10%).

Fitch has taken the following rating actions:

RadioShack Corporation

  • Long-term IDR downgraded to 'D' from 'C';
  • $250 million secured term loan affirmed at 'CCC-/RR2';
  • Senior unsecured notes affirmed at 'C/RR6'.

Fitch has withdrawn the following ratings:

  • $535 million senior secured ABL revolver rated 'CCC/RR1';
  • $50 million senior secured ABL term loan rated 'CCC/RR1'. 


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