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Global Credit Research - 26 Apr 2011
Approximately $675 million of debt securities affected
New York, April 26, 2011 -- Moody's Investors Service today assigned a Ba2 rating to RadioShack Corporation's
("RadioShack") proposed $300 million senior unsecured notes due
2019. Moody's also affirmed the company's Ba1 Corporate
Family and Probability of Default ratings and the Ba2 rating on its $375
million 2.5% senior unsecured convertible notes due 2013.
The outlook is stable.
$300 million senior unsecured notes due 2019 at Ba2 (LGD 4,
Ratings affirmed and LGD point estimate revised:
Corporate Family Rating at Ba1
Probability of Default Rating at Ba1
$375 million 2.5% senior unsecured convertible notes
due 2013 at Ba2 (LGD 4, 64%)
Senior unsecured shelf rating at (P)Ba2
The Ba2 rating on RadioShack's proposed $300 million senior
unsecured notes -- one notch lower than the company's
Corporate Family Rating -- reflects the notes' junior
position to the $450 million senior secured ABL revolving credit
facility (unrated) maturing in 2016.
"RadioShack's Ba1 Corporate Family Rating reflects its moderate
leverage -- net debt/EBITDA is about 4 times --
positive free cash flow profile, and successful product and strategy,"
stated Moody's Senior Analyst Mickey Chadha. The company's
product strategy focuses on high-service offerings, intimate
store size, and targeted selection of price-competitive national
or private label products. "The company's breadth of
peripherals for digital and audio-visual products, which
often require high-touch sales efforts, help differentiate
it from big-box stores," added Chadha.
Key credit concerns include the product volatility and business risk inherent
in consumer technology products given that these items may become commoditized
and other retailers could choose to increase their own selection to compete
with RadioShack. Additionally, consumer technology products
inherently carry high levels of obsolescence risk. RadioShack's
strategy of limiting inventory reduces risk, but increases the potential
of leaving customers unsatisfied.
The stable outlook reflects Moody's view that RadioShack will maintain
very good liquidity -- the company maintains a significant
cash balance -- and moderate leverage despite the expectation
that the company will continue to make modest levels of share repurchases.
Funded debt levels are not expected to change materially, and an
increase in earnings from maturing new kiosks in the Target stores should
offset some of the margin erosion in the wireless business experienced
in the most recent quarter due to change in product mix and underperformance
of the T-Mobile postpaid wireless business. As a result,
Moody's expects RadioShack's credit metrics to remain at current
levels over the next 12-18 month period. The stable outlook
also acknowledges that credit metrics and margins could exhibit some volatility
as a result of cyclicality driven by product introductions.
A higher rating would likely require further product diversification and
a reduction in RadioShack's exposure to the volatility of consumer
technology, and net debt/EBITDA sustained at or below 3.0
times and EBITA to interest expense sustained at or higher than 2.5
times. A material increase in net debt due to shareholder friendly
actions could result in a downgrade. Additionally, ratings
would be pressured if net debt/EBITDA were to rise above 4.0 times
for any reason and for an extended period or if EBITA margins, currently
at about 9%, dropped below 7%.
The principal methodologies used in this rating were Global Retail Industry
published in December 2006, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
RadioShack is a retailer of consumer electronics and peripherals,
as well as a retailer of cellular phones. It operates roughly 4,700
stores in the U.S. and Mexico and 1,300 wireless phone
kiosks in the U.S. The company also generates sales through
a network of 1,175 dealer outlets worldwide. Fiscal year
end 2010 revenues were approximately $4.5 billion.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
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independent third-party sources. However, Moody's
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Please see ratings tab on the issuer/entity page on Moodys.com
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The date on which some Credit Ratings were first released goes back to
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Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Ba2 to RadioShack proposed senior notes; Ba1 CFR affirmed
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