S&P Cuts RadioShack (RSH) to 'CCC-'; Would View Debt Restructuring as 'Tantamount to Default'

Standard & Poor’s Ratings Services today lowered its corporate credit rating on Fort Worth, Texas-based RadioShack (NYSE: RSH) to 'CCC-' from 'CCC'. The rating outlook is negative.

At the same time, we lowered the rating on the company’s senior unsecured notes to 'C' from 'CC', two notches below the corporate credit rating. The recovery rating on the notes remains a '6', which indicates our expectation ofnegligible (0%-10%) recovery of principal in the event of payment default.

"The downgrade comes as the company announced it will seek capital, and that such a transaction could include a debt restructuring in addition to store closures and other measures," said Standard & Poor's credit analyst Charles Pinson-Rose. "We would likely consider any such debt restructuring as tantamount to a default. Moreover, the company had $182 million of liquidity sources at the end of the second quarter and has been using cash at a significant rate. As such, we believe the company would likely exhaust its available liquidity sources within six months without a restructuring."

Standard & Poor's negative rating outlook reflects our view that the company will either exhaust its liquidity sources or restructure its debt within the next six months. We would likely lower the ratings if the company executed a restructuring transaction that was tantamount to a default, or if the company exhausted its liquidity.

A specific upside scenario is unlikely, but would probably entail the company improving its liquidity without materially impairing repayments to its existing lenders through a restructuring.

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