RadioShack Corp. filed a creditor-payback plan that calls for
unsecured creditors to share some of the proceeds of a liquidation
trust that would be created after the electronics retailer leaves
bankruptcy.
In a Friday filing with U.S. Bankruptcy Court in Wilmington,
Del., RadioShack offered scant details on its proposal, which it
has already said would pay off secured lenders including Cerberus
Capital Management LP.
It has long been known that after its roughly $160 million sale
to hedge-fund manager Standard General LP earlier this year,
RadioShack's estate wouldn't have enough cash to pay many of its
unsecured creditors—owed as much as $500 million—in full.
But the creditors have a plan. They have been eyeing the former
RadioShack's insurance, some $90 million worth of coverage
available to pay damages if a case can be made out that the
retailer was wronged by its managers. The liquidating trust is set
up so the moment RadioShack's plan becomes effective, all possible
future causes of action related to the company's management would
be transferred to the trust.
RadioShack's bankruptcy has been run as a liquidating chapter
11, a common form for distressed companies that want to get the
highest value for operating businesses. While the chapter 11 plan
filed Friday sets out how creditors would divide the assets,
including potential lawsuit claims over RadioShack's failure, not
all have said they support the continuation as a chapter 11.
Salus Capital Partners, a hedge-fund manager owed $150 million,
says it is time to shut down a chapter 11 proceeding that is
running up "staggering" costs. Bills to date and projections
indicate the former RadioShack will have to cover professional fees
and expenses of $45 million, Salus said in a filing earlier this
month.
What is left of RadioShack can be dealt with efficiently in a
cheaper chapter 7 bankruptcy, according to Salus. RadioShack hasn't
commented on the chapter 7 bid and didn't immediately respond to a
request for comment Monday on whether it opposes Salus's request.
If Salus's bid is successful, RadioShack would be liquidated by a
chapter 7 trustee rather than the company's advisers and
lawyers.
Lawyers have said Salus is unlikely to be paid in full from the
bankruptcy sales, unlike senior lenders who lent against the assets
and Cerberus.
Inventory and equipment in stores not taken over by Standard
General, which means a majority of the 4,000-store fleet of outlets
RadioShack brought with it to bankruptcy, have transformed into
cash to pay lenders in going-out-of-business sales. Standard
General's purchase of the company saved about 1,700 stores from
liquidation.
RadioShack, facing more than $1 billion in debt, filed for
chapter 11 protection Feb. 5. The filing came after a long decline
for a 94-year-old brand, once considered the go-to location for new
technology.
Write to Joseph Checkler at joseph.checkler@wsj.com
Access Investor Kit for RadioShack Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US7504381036
Subscribe to WSJ: http://online.wsj.com?mod=djnwires