RadioShack in Bankruptcy Anew, Triggered When Sprint Deal Soured, Say Filings
Sprint’s 2015 agreement with General Wireless Operations (GWO) to run co-branded RadioShack-Sprint mobility stores (see 1502060023) began to sour months ago, and that was the trigger that sent RadioShack hurtling toward its second Chapter 11 petition in as many years, said papers filed Wednesday in U.S. Bankruptcy Court in Wilmington, Delaware.
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Belkin, action-cam supplier Ion and TCL were the few brand-name consumer tech suppliers to dot RadioShack’s list of top 30 unsecured creditors, its petition (in Pacer) showed. RadioShack owes Ion $3.01 million in “disputed” trade debt, TCL is owed $686,000 and Belkin $602,000, the petition said.
GWO and Sprint projected that their “arrangement” at its inception would convert RadioShack’s mobile phone business “from a financial burden to a profit center,” said GWO CEO Dene Rogers in a court declaration (in Pacer) backing RadioShack’s petition. The deal entitled Sprint to keep the first $60 million of sales commissions “for itself,” but the carrier “thereafter would be required to pay them to RadioShack,” Rogers said. GWO expected the $60 million “threshold amount” would be “satisfied” in early 2016, about a year after the deal took effect, he said.
GWO had “significant negative” cash flow at the “outset” of its RadioShack arrangement with Sprint, Rogers said. But “GWO’s operating results showed considerable improvements through the end of 2016,” he said. Yet “decreased Sprint sales” caused Sprint’s commission “payouts” to GWO to be delayed, he said. “Had such payments been made in the manner and amounts” that GWO anticipated, those funds “would have been sufficient” for GWO “to raise new capital, cover one-time legacy liabilities, service impending debt obligations” and restore RadioShack to “financial stability,” he said.
Sprint sales “dropped off precipitously” at RadioShack stores just after the November election, “calling the original arrangement into question,” Rogers said. GWO management for at least a year “made numerous attempts to compel Sprint” to make the commission payments, but all were “rebuked,” he said. The final straw came when GWO early in 2017 tried but failed to get Sprint to agree to new financial terms, necessitating the Chapter 11 petition, he said. Filing the petition will allow RadioShack “to conduct store closing sales and reject leases at locations that are underperforming,” he said.
Under a March 5 “settlement agreement,” Sprint paid GWO a $12 million “wind down payment,” Rogers said. In return, GWO transferred to Sprint the leases for 115 RadioShack stores, plus an additional 245 stores “for which Sprint is the primary tenant,” he said.
Sprint representatives didn’t comment Thursday on the Rogers declaration. Kevin Crull, Sprint president-omnichannel sales, said in a Wednesday blog post that the RadioShack bankruptcy filing was “an unfortunate development for this storied retailer and valued partner.” Sprint understood “the risk in this business model” when it signed the pact with GWO two years ago to run the co-branded stores, Crull said. “We entered into an agreement that would protect Sprint's interests even in the event of another bankruptcy.”
The “several hundred doors” that Sprint acquired under the GWO settlement agreement will be converted “into Sprint corporate-owned stores,” Crull said. “We will redeploy to other Sprint stores assets such as signage, displays and inventory currently at RadioShack locations which are closing."