Standard & Poor’s has further cut its corporate credit rating on RadioShack to ‘CCC’ from ‘CCC+’ and at the same time assigned the company’s debt a negative outlook.
S&P’s Charles Pinson-Rose said the latest downgrade, “reflects the company’s very weak operating trends, which have led to significant liquidity usage. Even if performance trends moderate, we expect the company to be using cash over the near term.”
Last week, RadioShack reported a quarterly loss of $US98.3 million, on sales that fell 13% from the prior year. After the report, shares of the company fell more than 10%.
Following RadioShack’s disappointing report, Scott Tilghman, an analyst at B. Riley & Co., cut his price target on shares of RadioShack to $US0. Tilghman said the chances the company files for bankruptcy are now greater than 50%.
S&P said that its negative outlook on RadioShack reflects its view that the company will have weak operating results over the near term.
In its release, S&P outlines a “Downside” and an “Upside” scenario for RadioShack.
Neither appear all that encouraging (emphasis ours):
We would likely lower the ratings if we viewed a default as inevitable within
six months. We may do so if the company’s operating trajectory stayed the same or worsened and its available liquidity sources were below $US200 million.
A specific upside scenario is not contemplated, but it would likely mean that the company materially improves operating trends such that cash usage was not
material or manageable for an extended period of time. For this to occur, we would expect EBITDA to be at least near zero or slightly positive.”
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