Earlier this week, Industry Buzz discussed the closing of approximately 500 RadioShack retail stores. The company plans to restructure its image and transform itself into a destination for electronic gadgets such as stereo headphones, smartphones, and televisions. Super Bowl viewers got a look at RadioShack’s plans in its commercial during the big game, which displayed a mock current store being cleared out by 1980s-era figures to make way for a future store that appears to focus on consumer experience in addition to updated gadgets.
The commercial, however, doesn’t fully explain the details of what it means to restructure a company. Often there is more to that process than having a group of latter-day television personalities clear one’s shelves.
As Industry Buzz mentioned, RadioShack obtained $835 million from a GE Capital group to help refinance $625 million in company debt. The Wall Street Journal reports that the monetary deal took place in October and that, at the time, RadioShack was responsible for about $500 in long-term outstanding debt and about $450 million in a revolving line of credit.
The deal between RadioShack and its partner will allow it to refinance its debt. What this means, according to Business Pundit, is that RadioShack may complete any of several operations with regard to its outstanding obligations. The retailer has not been clear about exactly what it has done with that money, but its likely that it either consolidated and/or changed the terms of its loans.
If a company owes money to a number of entities, for instance, it can refinance by taking out yet another loan to pay off the former existing loans. The single new loan is used to pay off a handful of outstanding debts, and the company may see better terms associated with the new loan. In the case of RadioShack, its likely that the retailer paid off its debt in favor a owing money only to the GE Capital group. The terms of the new loan may be more to RadioShack’s liking, including a longer payback period and an improved interest rate, compared to its previous obligations.
The Wall Street Journal, furthermore, points out that a restructuring of RadioShack’s debt may have eased bondholders’ concerns over future restructuring plans, and it said stock prices for the company rose the day the deal was announced. Interested parties can infer that the refinancing of debt improved faith in the company because, in addition to th GE Capital group having enough faith in the company to support a financial deal, RadioShack then had enough money to support its present path of restructuring the image of the company as a whole.
RadioShack stepped out of murky water by modifying its obligations, and it gained faith from investors as well as buying power for exclusive product deals — those that should increase foot traffic to its revamped retail locations.
Image courtesy of Wikipedia