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Rating Action:

Moody's downgrades RadioShack's CFR to B1; outlook remains negative

24 Apr 2012

Approximately $700 million of rated debt securities affected

New York, April 24, 2012 -- Moody's Investors Service today downgraded RadioShack Corporation's ("RadioShack") corporate family and probability of default ratings to B1 from Ba2. In addition, the ratings for RadioShack's senior unsecured convertible notes and senior unsecured notes were downgraded to B2 from Ba3. The ratings outlook remains negative. RadioShack's SGL-1 Speculative Grade Liquidity rating is affirmed.

Mickey Chadha, Senior Analyst at Moody's said: "The negative trend in RadioShack's margins due to its top line being increasingly skewed towards low margin and highly competitive mobility business and the proliferation of low margin smart phones cannibalizing sales from its consumer electronics product line continues to cause deterioration in credit metrics." Chadha went on to say: "Due to the shift in its business mix the company needs to conform its cost structure and its capital structure to support a comparatively lower gross margin business model going forward."

RATINGS RATIONALE

RadioShack's B1 Corporate Family Rating reflects the company's increasing reliance on its low margin mobility business which has resulted in margin erosion and deteriorating credit metrics, its vulnerability to product renewal cycles, product volatility driven by price competition from a variety of retail formats, small store size with the constant need to re-balance product mix and obsolescence risk inherent in consumer technology.

The Rating is supported by RadioShack's very good liquidity profile, positive free cash flow, balanced financial policy, and its selection of price-competitive national and private label products. The company's breadth of peripherals for digital and audio-visual products, which often require high-touch sales efforts, helps differentiate it from big-box stores.

The following ratings are downgraded and point estimates updated:

Corporate Family Rating to B1 from Ba2

Probability of Default Rating to B1 from Ba2

$375 million 2.5% senior unsecured convertible notes due 2013 to B2 (LGD 4, 67%) from Ba3 (LGD 4, 64%)

$325 million senior unsecured notes due 2019 to B2 (LGD4, 67 %) from Ba3 (LGD 4, 64%)

Senior unsecured shelf rating to (P) B2 from (P) Ba3

The negative outlook reflects our opinion that the overall business strategy of the company to reverse the sequential quarterly declines in profitability has not gained any traction and our expectation that the 2012 retail operating environment will remain challenging and the increasing price competition within the wireless mobility sector including wireless carriers will continue to pressure margins. Therefore we believe that RadioShack's ongoing lackluster operating performance and margin erosion will likely continue in the near to medium term. Pending maturity concerns are mitigated by our expectation that the company's cash balance will be maintained at approximately current levels.

Given the negative outlook and the steep decline in the company's operating performance and profitability, upward movement in RadioShack's ratings is unlikely in the near to medium term. Stabilization of the outlook will require sustained improvement in operating margins and absence of any further operating missteps. Stabilization of the outlook will also require very good liquidity, and EBITDA demonstrating tangible incremental progress toward a level that would result in debt/EBITDA being sustained below 5.0 times and EBITA to interest being sustained above 1.75 times.

In the longer term a higher rating will require no deterioration in liquidity, sustained positive comparable store sales growth and improvements in operating margins and profitability such that debt / EBITDA is sustained below 4.25 times and EBITA to interest is sustained above 2.25 times.

The failure of the company to abate the sequential quarterly decline in EBITDA and earnings will lead to a downgrade. Given that debt/EBITDA and EBITA/interest for the LTM period ended March 31, 2012 is estimated to be approximately 6.0 times and approximately 1.5 times respectively, ratings could be downgraded if there is no improvement in credit metrics in the near to medium term. Ratings could also be downgraded due to further increases in dividends or share buyback's and any deterioration in liquidity.

The principal methodology used in rating RadioShack was the Global Retail Industry Methodology published in June 2011. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

RadioShack is a retailer of consumer electronics and peripherals, as well as a retailer of cellular phones. It operates roughly 4,476 stores in the U.S. and 227 stores in Mexico. It also operates 1,496 wireless phone kiosks in Target stores. The company also generates sales through a network of 1,091 dealer outlets worldwide. Revenues for the fiscal year 2011 were approximately $4.4 billion.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the 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 Analytics information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Manoj Chadha
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades RadioShack's CFR to B1; outlook remains negative
No Related Data.
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