RadioShack Lenders Seen Escalating Default Risk: Distressed Debt
by The Daily Lede
RadioShack Corp. (RSH)’s lenders are blocking its plan to close 1,100 unprofitable stores to save money, deepening speculation among derivatives traders the electronics retailer will default within a year.
The lenders, whose consent RadioShack needs to shutter more than 200 sites a year, weren’t willing to provide permission on terms acceptable to the company, according to a May 8 regulatory filing. The denial, which prevents RadioShack from paring cash outflows, has caused demand for protection against non-payment to increase. Credit-default swaps now imply a 45 percent chance of default in December and 86 percent by June 2015, according to data compiled by Bloomberg.
“The company is running out of options for its turnaround strategy,” Moody’s Investors Service analyst Manoj Chadha said. Liquidity is going to deteriorate and RadioShack may start to lose vendor support, making it difficult for the company to continue as a viable operation, Chadha said.