Salus Capital Partners LLC, the agent for the retailer's prepetition term lenders, seeks to significantly restrict the credit-bidding rights of Standard General LP and other hedge funds that provided the debtor's asset-based credit facility and look to acquire a large part of RadioShack's operations.
Salus also wants the asset-based lenders to disgorge and pay the term lenders some $129 million they were repaid on the ABL facility. Salus alleged its $250 million term loan is senior to the ABL lenders' converted term loan.
The Needham, Mass., lender on Wednesday, March 18, filed a motion in the U.S. Bankruptcy Court for the District of Delaware in Wilmington seeking to enforce a prepetition intercreditor agreement between it and the ABL lenders that would restrict their credit-bidding rights to no more than $111 million owed on outstanding term and revolving loans.
Specifically, Salus alleged the ABL lenders only are entitled to credit-bid $50 million owed on an term loan and $61 million owed on a letter of credit facility pursuant to a December 2013 intercreditor agreement. It asserted the ABL lenders should not be permitted to credit-bid any part of $275 million in ABL revolving loan commitments that were converted into term loans in October 2014.
Salus also filed an adversary complaint with the court on Tuesday, seeking the disgorgement from the ABL lenders, as well as rulings on their claims.
Chief Judge Brendan Linehan Shannon as of Thursday afternoon apparently had not ruled on Salus' request for a Thursday status hearing on the adversary complaint and credit-bidding motion.
Standard General acquisition vehicle General Wireless Inc. is the stalking horse for 1,500 to 2,400 of the retailer's company-owned U.S. locations. The stalking horse has agreed to pay $3,000 for each store plus credit-bid certain prepetition debt. General Wireless has a deal in principle with Sprint Corp. (S) to establish a "store within a store" model with the telephone company in up to 1,750 of the locations.
Rival offers were to be due Tuesday, but Salus noted that because a valuation statement for the deal had not been filed as of Tuesday evening, the deadline had been extended. RadioShack on Monday in court papers said General Wireless was amending the asset purchase agreement, which would delay the filing until "as soon as practicable following receipt of the amended stalking horse APA."
According to court papers, Salus, General Electric Capital Corp. and a previous group of ABL lenders signed the December 2013 intercreditor agreement in connection with their loans: Salus provided RadioShack with a $250 million term loan, and GE Capital and the ABL lenders provided a $50 million term loan and $535 million in asset-based loan commitments. The loans were secured by the same RadioShack collateral pool.
GE Capital and the original ABL lenders in October 2014 assigned their loans and obligations to a new group of ABL lenders that included Standard General and other hedge funds. The new ABL group and RadioShack at the time amended the terms of their credit agreement to reduce the original ABL loan commitment by $275 million and converted the revolving loans into new term loans.
The new term loans are subordinate to Salus' original $250 million lien, Salus asserted. When the loans were converted, about $232 million was outstanding on the revolver. Since the October 2014 loan conversion, RadioShack has repaid $129 million of the balance, leaving $103 million outstanding.
Since Salus alleged the term loans are subordinate to its term loan, it demanded the ABL lenders disgorge the $129 million they were paid and remit it to the Salus lending group. It also alleged the $103 million balance cannot be repaid to the ABL lenders until Salus' $250 million debt is repaid.
RadioShack filed for Chapter 11 on Feb. 5, days after it announced the receipt of a second default notice from Salus. The debtor on March 6 won final approval of a $285.33 million debtor-in-possession facility from the ABL lenders.
The debtor began store closing sales shortly after filing for bankruptcy as part of a three-phase liquidation of inventory. The first phase liquidated and closed 162 stores by Feb. 17. The second phase liquidated 986 stores with a target closure date of Feb. 28. The third phase of its store closure program will liquidate 636 stores that are scheduled to close by March 31.
RadioShack has enlisted a consortium of Hilco Merchant Resources LLC, Gordon Brothers Retail Partners and Tiger Capital Group LLC to liquidate thousands of stores not included in the Standard General deal.
Court papers show the debtor traces its roots to shoe part supplier Hinckley-Tandy Leather Co., founded in 1919, and mail-order radio parts supplier RadioShack, founded two years later. Tandy acquired RadioShack in 1963, and the company took its current name in 2000.
RadioShack has more than 21,000 employees.
In its petition, RadioShack reported $1.2 billion in assets and $1.39 billion in liabilities as of Nov. 1. A first-day declaration said the debtor has about $30 million in unpaid lease obligations.
Neither Salus counsel John Ventola of Choate Hall & Stewart LLP nor ABL lender counsel Stanley Tarr of Blank Rome LLP were available for immediate comment. Debtor co-counsel David Fournier of Pepper Hamilton LLP also was not available.
A Jones Day team led by John K. Kane, Robert A. Profusek, Greg M. Gordon and David G. Heiman and Evelyn J. Meltzer and John H. Schanne II of Pepper Hamilton are also debtor counsel.
Maeva Group LLC is a RadioShack restructuring adviser, and David A. Kurtz of Lazard Ltd. is its investment banker.
Craig A. Bowman, Richard F. Hahn and Jonathan E. Levitsky lead a Debevoise & Plimpton LLP team advising Standard General. The team also includes M. Natasha Labovitz, George E.B. Maguire and Shannon R. Selden. Gregory Werkheiser of Morris, Nichols, Arsht & Tunnell LLP and Gregg Galardi of DLA Piper LLP also represent the stalking horse.
Damian S. Schaible, Elliot Moskowitz, Darren S. Klein, Eli J. Vonnegut and Christopher S. Robertson of Davis Polk & Wardwell LLP also are advising the ABL group providing the DIP. Kaye Scholer LLP represents DIP agent Cantor Fitzgerald.
Anthony W. Clark, Jason M. Liberi, Jay M. Goffman and Mark A. McDermott of Skadden, Arps, Slate, Meagher & Flom LLP also represent Salus.
Jay R. Indyke, Cathy Hershcopf, Richard S. Kanowitz, Jeffrey L. Cohen, Seth Van Aalten and Michael Klein of Cooley LLP; Susheel Kirpalani, James C. Tecce, Benjamin I. Finestone, Kate Scherling and William Pugh of Quinn Emanuel Urquhart & Sullivan LLP; and Christopher M. Samis and L. Katherine Good of Whiteford, Taylor & Preston LLP represent the official committee of unsecured creditors, which comprises AT&T Corp. (T), GGP LP, Martin Moad, National Distribution Warehouse Inc., Simon Property Group Inc. (SPG), Tracfone Wireless Inc. and Wilmington Trust NA.