Lenders look for culprits in RadioShack bankruptcy

Unsecured creditors of RadioShack are suggesting that hedge fund lenders to the electronics retailer purposely timed the company’s bankruptcy down to profit on its demise.  

According to recent court filings, certain unsecured lenders and other counterparties of RadioShack are seeking a probe into hedge funds they suspect purposely timed the bankruptcy of the electronics retailer to profit from its downfall.

Instead of paying attention to warning signs and putting RadioShack into Chapter 11 protection last year, the New York hedge fund firm Standard General and another large stakeholder bought the company’s most senior debt and allegedly pursued a self-serving strategy, according to The Wall Street Journal

RadioShack finally filed for Chapter 11 bankruptcy on 5 February and is closing 1,700 stores this month and plans to sell 2,400 stores to Standard General, which will turn some of them over to wireless service provider Sprint, which Standard General also has an investment in.  

The papers were filed on 17 February in US Bankruptcy Court in Wilmington, Delaware. A committee comprised of the company's landlords, suppliers and unsecured bondholders are seeking access to non-public information they say will confirm that RadioShack's bankruptcy was an “assisted suicide” led by its largest shareholders, Standard General hedge fund and LiteSpeed Management, Reuters reports.

The creditors said RadioShack should have filed for bankruptcy in May, when it initially sought permission to close around 1,000 unprofitable stores. That plan was blocked by its most senior creditors. The committee asked for documents from former directors, officers, advisors, as well as Standard General and LiteSpeed.

“Standard General has been a supportive investor of RadioShack and was deeply disappointed that the company had to file for bankruptcy. Our recent proposal to acquire approximately half of the store base is the best chance to preserve the business as a going concern, thereby preserving more than 10,000 jobs and resulting in creditor recoveries substantially above liquidation. These allegations are without substance or merit and threaten to derail a material opportunity for the company's stakeholders. We look forward to moving ahead expeditiously,” David Glazek, partner at Standard General said in an e-mailed statement provided to PDI

Previous reports also suggested that Salus Capital Partners, a relatively small asset-based lender in Needham Heights, MA, also played a part in RadioShack’s downfall. The lender provided a $250 million loan to the company in 2013 and had subsequently blocked the retailer’s plans to close some stores because it would reduce their collateral. Salus has also accused RadioShack of breeching its covenants, a claim the retailer has denied. The deal was by far the largest for the Massachusetts lender, which normally doles out loans in the $5 to $50 million range, and has the ability to hold up to $100 million and to syndicate larger transactions, according to its website.  

The firm also offered RadioShack a $500 million debtor-in-possession loan last month as it goes through bankruptcy. RadioShack seemingly didn’t take the offer and instead announced a deal with Standard General for bankruptcy financing on 5 February.