RadioShack Corporation: Analysts Sees Concerns Over New Financing

RadioShack Corporation RSH shares fell sharply on Monday on news of it refinancing a $535 million line of credit. The refinancing included a $120 million investment that is expected to convert to equity.

Overall, analysts seem skeptical that the company can avoid bankruptcy. While the refinancing news helps RadioShack keep shelves stocked for the holiday season, it remains in a precarious position.

An area of concern is the lack of detail on what RadioShack will do after the holidays. According to Fitch Ratings, the amended financing “facility changes in March 2015" and details have not been provided.

"RadioShack expects to seek to refinance the facility by that time. In addition, the amended [asset based lending] facility will be required to be refinanced if the rights offering described below is not completed by March 15, 2015," according to Fitch.

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According to BTIG, “we think that these statements strongly imply that the overall capacity and availability under the new [financing] facility will "change" by becoming smaller. Specifically, just enough to "fund the inventory build" for the holidays. This is clearly a temporary stopgap, intended to prevent RSH from plummeting into complete insolvency before the holidays.”

Based on Fitch and BTIG, it seems analysts view this new funding as a short-term bandage rather than a long-term solution.

Wedbush reiterated its Underperform rating, while B. Riley reiterated its Sell Rating.

RadioShack Corporation closed Monday at $0.87, down 12.1 percent.