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S&P Lowers RadioShack (RSH) to 'CCC'; Notes Weak Operating Trends, Liquidity

June 16, 2014 2:20 PM EDT

Standard & Poor’s Ratings Services today lowered its corporate credit rating on the Fort Worth, Texas-based RadioShack Corp. (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 'CC' from 'CCC-', two notches below the corporate credit rating. The notes’ recovery rating remains a '6', which indicates our expectation of negligible (0%-10%) recovery of principal in the event of payment default.

"The downgrade reflects the company’s very weak operating trends, which have led to significant liquidity usage. Even if performance trends moderate, we expect the company to be using cash over the near term," said credit analyst Charles Pinson-Rose. "We currently expect that the company has liquidity sources to finance the operating losses and working capital needs in the current fiscal year (ending January 2015), but the company would have very small amounts of liquidity early next year, which could lead to a liquidity crisis and default or the company’s decision to seek a financial restructuring."

Our negative outlook on RadioShack Corp. reflects our view that the company will have weak operating results over the near term and further deplete its liquidity sources.

Downside Scenario

We would likely lower the ratings if we viewed a default as inevitable within six months. We may do so if the company’s operating trajectory stayed the sameor worsened and its available liquidity sources were below $200 million.

Upside scenario

A specific upside scenario is not contemplated, but it would likely mean that the company materially improves operating trends such that cash usage was not material or manageable for an extended period of time. For this to occur, we would expect EBITDA to be at least near zero or slightly positive.



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