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RadioShack soars for third day on prospect of more financing

A sign for a RadioShack store is seen in the Brighton Beach section of the Brooklyn borough in New York in this file photo taken March 4, 2014.

SHANNON STAPLETON/Reuters

RadioShack Corp. shares jumped 31 per cent, the third straight day of double-digit gains, on speculation that the company will get a rescue financing package that helps it stave off bankruptcy.

The shares rose to $1.43 (U.S.) at the close in New York, the biggest one-day percentage increase in more than three decades, following gains of 27 per cent yesterday and almost 20 per cent the day before.

Bloomberg News reported on Aug. 26 that RadioShack was talking with shareholder Standard General LP about a financing deal. Standard General, a hedge fund that's also orchestrating a lifeline for American Apparel Inc., is seeking to bolster RadioShack's cash by issuing debt or equity, two people familiar with the matter said. That's giving fresh hope to investors in the beleaguered stock, said Anthony Chukumba, an analyst at BB&T Capital Markets in New York.

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"What the market is saying is that this company has been brought back from the dead, that there is hope – that this may not be a fait accompli that this company's going to zero," he said.

Standard General also is seeking to refinance RadioShack's $250-million second-lien term loan, which is held by Salus Capital Partners LLC and Cerberus Capital Management LP, Bloomberg reported this week.

Shutting Stores

Paying down that debt may give the retailer enough leeway to close a larger number of underperforming stores, helping the company burn less cash. RadioShack creditors had blocked a plan to shut 1,100 stores earlier this year, forcing the retailer to limit the closings to as many as 200 instead.

RadioShack chief executive officer Joe Magnacca has been remodeling RadioShack stores and revamping its product lineup in a bid to revive sales. Still, analysts have grown increasingly concerned that the unprofitable company won't have enough time to execute the turnaround.

The recent investor optimism shows the bankruptcy threat may be easing, not that the long-term outlook has improved, said Chukumba, who has a hold rating on the stock.

"Even if they get the rescue financing, it's just forestalling the inevitable," he said

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