RadioShack preparing to file for Chapter 7

RadioShack (NYSE:RSH) is preparing to file for bankruptcy protection, according to people familiar with the matter. As reported by the Wall Street Journal and Motley Fool, the company's failed turnaround efforts have left the electronics chain short on cash, and therefore, the retailer could seek out Chapter 7 protection.

"It looks like the company is headed for a Chapter 7, with a first bid for assets (called a Stalking Horse) coming from a private equity firm," said Paula Rosenblum, retail analyst, RSR Research.

The filing could come as early as the first week of February, according to source familiar with the matter, reported the Wall Street Journal. In the meantime, the company is in talks with a private-equity firm that could buy its assets out of bankruptcy and if that deal fails, the retailer may try for a restructuring of its operations in bankruptcy court.

Just last week, RadioShack received an unsolicited $500 million loan offer from Salus Capital, if the company agreed to file for bankruptcy. This could give the lender more influence if RadioShack eventually files for Chapter 11, reported Motley Fool. If the loan is accepted, it would replace the existing $585 million asset-backed credit line.

To further its stake in RadioShack, just last month Salus accused the retailer of breached covenants on a $250 million term loan, though RadioShack contested the claims. 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.

RadioShack discounted the claims and also pointed out that the lender has blocked the retailer's requests to accelerate the closure of up to 1,100 underperforming stores.

"I'd say they could be headed for a re-organization—they have as much cash as they're going to have," added Rosenblum.

RadioShack has posted losses in the last 11 quarters. In December, the retailer said it needed to raise new funds or get relief from lenders.

For more:
-See this Wall Street Journal article
-See this Motley Fool article

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