RadioShack Corporation announced that it has entered into definitive agreements to restructure a portion of its existing debt, providing additional near-term liquidity and serving as a first step in a stronger foundation for the Company's continued business transformation.
Standard General LP and certain other investors have replaced GE Capital as lead lender under RadioShack's senior secured asset based credit facility ("ABL Facility") which will allow immediate access to additional liquidity. Other investors, including RadioShack shareholders Standard General and Litespeed Management LLC, are providing $120 million to be used to cash collateralize letters of credit for the Company. In the coming months, this $120 million is expected to be converted into equity. Current shareholders will have the opportunity to participate in a rights offering at same conversion price.
"We are pleased to complete this important step, which we believe positions us to continue to progress our operational turnaround," said Joe Magnacca, RadioShack's chief executive officer. "We recognize that we will need to address constraints under our existing term loan in order to undertake a store base consolidation program and pursue other measures to reduce our cost structure. This amended ABL Facility provides time to pursue a longer-term restructuring. To that end, we are in constructive discussions with our term lenders, led by Salus Capital, toward additional steps to recapitalize RadioShack.
"We look forward to continuing to serve our customers with differentiated products and an upgraded shopping experience as we move into the Holiday season."
The agreements include two key elements:
ABL Facility – Standard General and certain other investors have acquired the loans and agreed to changes affecting the credit availability under RadioShack's existing ABL Facility. As a result, RadioShack believes that it will have sufficient credit capacity under the ABL Facility to fund its inventory build for the Holiday season. Because borrowing availability under the amended ABL Facility changes in March 2015, the Company expects to seek to refinance the facility by that time. In addition, the amended ABL Facility will be required to be refinanced if the rights offering described below is not completed by March 15, 2015.
New Equity – The $120 million investment is expected to be converted into equity securities representing (together with related fees payable in equity securities) not less than 50% of the Company's outstanding equity securities upon satisfaction of certain conditions. These conditions include the modification of a supplier contract, at least $100 million of available cash and borrowing capacity at January 15, 2015, development of a fiscal 2016 plan satisfying certain requirements and the completion of a rights offering to existing RadioShack shareholders to purchase equity securities at a price of $0.40 per common share equivalent.
The percentage of equity securities that Standard General and other investors will own as a result of this transaction will depend upon the level of participation, if any, of existing shareholders in the rights offering. If no shares were purchased in the rights offering, existing shareholders would own 20% of RadioShack's equity securities. The voting rights of any person or group acquiring equity securities in the transaction would be limited to 34.9% of the total voting power of the Company's voting stock so long as greater voting power would accelerate Company debt.
If the $120 million investment is converted into equity, the Board will be reconstituted to consist of the Company's CEO, two independent directors selected by RadioShack and four individuals nominated by Standard General. The new directors must be approved by the Company's corporate governance committee. At least two of these directors must be independent.
RadioShack intends to initiate the rights offering late this year or in early 2015. There can be no assurance that the rights offering will be completed or that the other conditions to the equity conversion will be satisfied, nor can the Company be certain that it will be able to refinance borrowings under the amended ABL Facility by March 2015.
The stock issuances described above would normally require approval of RadioShack's shareholders pursuant to the Shareholder Approval Policy of the New York Stock Exchange (the "Exchange"). The audit and compliance committee of RadioShack's Board of Directors determined that the delay that would result from securing shareholder approval prior to the completion of these stock issuances would seriously jeopardize the financial viability of RadioShack. Because of that determination, the audit and compliance committee, pursuant to an exception provided in the Exchange's shareholder approval policy, expressly approved RadioShack's omission to seek the shareholder approval that would otherwise have been required under that policy. The Exchange has accepted the Company's application of the exception.
In conjunction with the rights offering, RadioShack intends to initially issue equity securities that would be convertible, subject to the satisfaction of all applicable conditions, into at least 400 million shares (and up to 700 million shares) of common stock. In reliance on the Exchange's shareholder approval exception, RadioShack will notify its shareholders of its intention to issue the shares without seeking their approval at least ten days prior to the issuance of the shares.
The securities to be offered in the rights offering will be offered pursuant to a registration statement to be filed with the SEC and a related prospectus. This press release does not constitute an offer to sell or the solicitation of an offer to buy, nor will there be any sales of, such shares in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state or other jurisdiction.
This press release does not set forth all of the terms and conditions of the issuances of shares and other transactions contemplated by the recapitalization agreements described above. The material contracts relating to these matters will be filed by the Company with the SEC.
RadioShack's financial advisor is Peter J. Solomon Company and its legal counsel is Jones Day. Lazard Feres and Co. is acting as the financial advisor to RadioShack's Board of Directors. Debevoise & Plimpton LLP is legal counsel to Standard General. Blank Rome LLP advised investors of the ABL Facility.