NEW YORK ( The Deal) -- While troubled electronics retailer RadioShack (RSH) just met a deadline to repay its notes, a ratings agency has warned that it could default on its debt in the next 12 months unless it makes a turnaround.
The Fort Worth, Texas-based company could be facing a liquidity crisis or financial restructuring in the next year, unless it makes significant progress, ratings agency Standard & Poor's warned in an Aug. 1 report.
In late July, RadioShack hired restructuring expert AlixPartners and investment bank Peter J. Solomon as financial advisers for a turnaround of the company.
One of the AlixPartners' managing directors, Holly Etlin, has also been named as RadioShack's new interim CFO, replacing Dorvin Lively, who left the company.S&P downgraded the company's corporate credit rating and the rating on its $325 million in 6.75% senior unsecured notes due May 15, 2019 to CCC from CCC+, in the report. "The company is dependent on progress with its strategic turnaround to reverse the substantial decline in profitability and ongoing cash use in order to avoid a financial restructuring," the S&P report said. RadioShack has opened a new concept store, which is designed to offer a friendlier customer experience, while also giving customers a cleaner and more modern shop, but it remains to be seen if the strategic changes will be enough to alter its downward financial path. According to Moody's senior analyst Manoj Chadha, the company is revamping its stores and reducing the number of SKU's it carries in the stores in order to streamline its inventory and reduce its cash burn. While it has also hired advisors, "it's still early in the process and hard to see any positive traction due to strategic initiatives at the moment," Chadha said, adding that "refinancing options seem quite limited given the company's operating performance." The company paid down roughly $214 million of 2.5% convertible senior notes, which came due on Aug. 1 with cash, a RadioShack spokesman confirmed Friday, Aug. 2. RadioShack declined to comment further. Since the debt pay-down, the company's liquidity is estimated at $215 million in cash and $385 million in revolver availability, which expires in January 2016, the S&P report said.
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