RadioShack (RSH) stock is skyrocketing this morning on news that the company reached a refinancing agreement with Standard General LP that’s expected to help RadioShack stay alive at least through 2014’s holiday shopping season.
This year has been tough for RSH stock, which had lost more than 60% of its value this calendar year amid mounting worries over its lack of liquidity and potential for bankruptcy.
But RadioShack stock shot up 35% at Friday’s open as euphoric traders celebrated the completion of RadioShack’s latest Hail Mary.
Unfortunately, RSH is just buying time and has no real hopes of staying in this game.
Don’t Get Your Hopes Up
Hedge fund Standard General is RadioShack’s largest single investor, and thus has a little motivation to see the beleaguered consumer electronics retailer survive another holiday season.
How the deal shapes up, according to Bloomberg:
“Standard General, a New York-based hedge fund, will lead a group of lenders to refinance debt outstanding under a $535 million asset-backed revolving credit line from GE Capital, the lending arm of General Electric Co. (GE), said the person, who asked not to be identified because the negotiations are private. The pact also includes refinancing of some additional debt, according to the person.”
There’s no doubt about it: This is great news for RSH, which only last month announced that it was seeking ways to shore up its balance sheet, and that if it couldn’t do that, bankruptcy was among the options being considered.
But when you put this morning’s gains in context, the only reason RSH stock is exploding today is because it’s not going out of business — and only for a few months.
If a company not going under within a few months is what passes for “good news,” here’s a bold assertion: Any stock in that company is a dog.
RadioShack has a new lease on life, but it’s a short-term lease. Standard General is just making sure RSH stock doesn’t plunge to $0 before June 2015, when the hedge fund will be freed up to take over RadioShack’s board, seek a sale and further restructure RadioShack’s capital structure without the consent of the electronics retailer.
Investors should be grateful that RadioShack should live to see the end of the year and be around for the holiday season — if only because it gave them one last pop they can sell to salvage something of their original investment.
But the job that Amazon.com (AMZN) and other e-commerce players, as well as bigger outfits like Best Buy (BBY) and even Walmart (WMT), will be done sooner than later. And the creditors are still circling RadioShack.
If you find yourself holding RSH stock, get out. If not, don’t even think about jumping in.
As of this writing, John Divine did not hold a position in any of the aforementioned securities.