RadioShack (NYSE:RSH) has received notice from Salus Capital Partners, a unit of Harbinger Group Inc., claiming it is in breach of covenants on a $250 million term loan provided by Salus and Cerberus Business Finance. But the retailer shot back, saying these claims were "wrong and self-serving." RadioShack will now contest the claims.
The claims related to an agreement entered into by the company on Oct. 3. Thus far, other lenders holding a majority of the retailer's loans and commitments have said they will continue to extend their credit to RadioShack.
"Despite their intimate knowledge of the challenges that RadioShack faced when they extended credit to us late last year, our current term lenders have repeatedly blocked our efforts to accelerate and intensify our turnaround and make smart decisions for our business," said CEO Joe Magnacca.
RadioShack is in the midst of a turnaround plan, which includes cutting costs to create $200 million in savings. The company wants to close up to 1,100 stores to focus on more profitable locations, but thus far, has been blocked by lenders. Salus Capital, is attempting to get a bigger piece of the retailer's debt, in exchange for agreeing to back the company's store-closing plan. "It appears to us that the term lenders seek only to advance their particular interests at the expense of all other RadioShack stakeholders and will oppose any common sense business move requiring their consent unless the company agrees to their exorbitant demands," said Magnacca.
He added: "We will do everything we can to assure that these claims do not distract us from our ongoing efforts to rationalize our capital structure and transform our business. We will maintain our focus on operating our business as we move forward."
-See this RadioShack press release
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