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Rating Action:

Moody's downgrades RadioShack's convertible notes to Ba2, affirms Ba1 CFR

11 Jan 2011

New York, January 11, 2011 -- Moody's Investors Service today downgraded RadioShack Corporation's ("RadioShack") senior unsecured convertible note rating to Ba2 from Ba1 and affirmed all other ratings including the Ba1 Corporate Family and Probability of Default ratings. Moody's also affirmed the Ba1 rating on RadioShack's 7.375% 2011 senior unsecured notes. The outlook remains stable.

RATINGS RATIONALE

The downgrade of the 2.5% senior unsecured convertible notes due 2013 was a result of RadioShack's January 7, 2011 announcement that it had refinanced its existing $325 million unsecured revolving credit facility (unrated) and replaced it with a new five year $450 million senior secured ABL revolving credit facility (unrated). The senior secured nature of the new revolver lowers the relative priority of claim of the 2013 convertible bonds which were previously pari passu with all other debt obligations of the company, resulting in the downgrade.

At the same time, the company announced a plan to redeem its 7.375% senior unsecured notes due May 11, 2011. The company has placed the funds necessary to redeem the 2011 notes in an irrevocable trust and these funds will be held by the trustee until the redemption of the notes. Moody's notes that it overrode the rating indicated by its Loss Given Default model for the 2011 senior unsecured notes, and affirmed the rating on these notes at Ba1. Given that the company has already placed the funds necessary to redeem these notes into an irrevocable trust, the risk profile has not deteriorated and a downgrade would be unwarranted. Moody's will withdraw the ratings on the 2011 notes upon their redemption, which is scheduled to take place on March 4, 2011.

RadioShack's Ba1 Corporate Family Rating reflects its sound credit metrics, healthy cash flow, moderate seasonality and cyclicality, the large number and accessibility of its stores, and its successful product strategy. Ratings are constrained by product volatility and business risk inherent in consumer technology.

The stable rating outlook incorporates Moody's expectation that the company will maintain very good liquidity, even after considering modest levels of share repurchases that are in line with historical levels and funded from operating cash flow. The stable outlook also reflects the risk that credit metrics could have some short term volatility from time to time as a result of cyclicality driven by product introductions.

The following ratings were downgraded:

$375 million 2.5% senior unsecured convertible notes due 2013 to Ba2 (LGD 4, 68%) from Ba1 (LGD 4, 55%)

Senior unsecured shelf rating to (P)Ba2 from (P)Ba1

The following ratings are affirmed and point estimate changed:

Corporate Family Rating at Ba1

Probability of Default Rating at Ba1

$307 million 7.375% senior unsecured notes due 2011 at Ba1 (LGD 4, 63%)

Over the intermediate term, a rating upgrade is unlikely given RadioShack's market position, diverse competition in all of its product categories, and exposure to the volatility of consumer technology. Ratings could be upgraded over the longer term if net debt / EBITDA is sustained below 3.0 times, if EBITA to interest expense is sustained above 2.5 times, and if the company improves operating margins beyond current levels.

Conversely, a change in financial policies, including a material increase in net debt due to shareholder return activities or strategies which increase operating risk, could result in a downgrade. Specifically, ratings would be pressured if net debt / EBITDA were to rise above 4.0 times for an extended period. Ratings could also be downgraded if the company's market position were to weaken, demonstrated by an erosion in sales or EBITA margins declining below 7%.

The last rating action on RadioShack was on March 12, 2007 when its senior unsecured rating was downgraded to Ba1 from Baa3 with a stable outlook.

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 leading retailer of consumer electronics and peripherals, as well as a large 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 1,200 dealer outlets worldwide. Revenues are about $4.4 billion.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service 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 the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Manoj Chadha
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's downgrades RadioShack's convertible notes to Ba2, affirms Ba1 CFR
No Related Data.
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