RadioShack's (RSH) Turnaround Story Becoming Turnaround Fable - BTIG

BTIG comments on RadioShack (NYSE: RSH) following news that the retailer's creditors are claming default.

Analyst William Frohnhoefer comments: When they speak to us about the company, investors don't discuss RadioShack as a potential turnaround story anymore. They don't anticipate any encouraging surprises when RSH reports earnings two weeks before Christmas. We don't think they're wrong: the fight over the capital structure has taken center stage and the business itself has become a subplot.

Frohnhoefer also noted the following key points:

• The most recent headlines, emanating from Bloomberg and other sources, are RSH management's rejection of the Trustee's (and effectively Salus Capital's) default notice - coupled with its stated determination to continue its quest to close 1,100 stores, and its request to Salus for "forbearance" on its default notice.
• The ball is now in Salus Capital's court and we would not be surprised if Salus now looks to a judge to enforce the notice of default. Consider Salus Capital's position. Every dollar that the new ABL Facility makes available to RSH increases the first lien claims priming the Salus term loan, and every new store closing likely slightly diminishes the meager collateral under the Salus term loan's first lien claims.
• According to some news sources, Salus suffers from the further disadvantage of standing behind its fellow term loan lender, Cerberus, who reportedly holds first-out status under the (unfiled) Intercreditor Agreement. If this is the case, Salus has an even stronger motivation to stop the clock - a clock whose running time is otherwise dictated by the schedule laid out in the recapitalization agreement put in place by Salus Capital's adversaries.
• Valuation: Our analysis of RadioShack's current situation does not support the recommendation of either a short or a long position in the shares. BTIG does not put price targets on Neutral-rated stocks.

For an analyst ratings summary and ratings history on RadioShack Corp. click here. For more ratings news on RadioShack Corp. click here.

RadioShack Corp. closed at $0.59 yesterday.

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