RadioShack’s Troubles Feed a Growth Spurt for GameStop

Some 900 RadioShack stores will sit dark and empty Sunday, their leases unsold

The Wall Street Journal 
By Peg Brickley
February 27, 2015 

GameStop is picking up about 163 RadioShack locations, boosting its Spring Mobile collection of AT&T cellphone sales outlets by about 50%.

Spring Mobile, GameStop’s AT&T and Cricket sales chain, Friday won bankruptcy court approval to pay about $2.4 million for an option on the leases, part of a package of more than 1,600 RadioShack leases auctioned Wednesday.

Norman Pernick, a lawyer for Spring Mobile, said the company intends to exercise its option to pick up all the leases. Most stores are set to reopen as Spring AT&T cellphone retail outlets, about 11 will be new GameStop stores, and one will be a Simply Mac outlet, specializing in Apple sales and repairs.

While GameStop enjoys a growth spurt, some 900 RadioShack stores will sit dark and empty Sunday, their leases unsold. Landlords are a large and growing part of RadioShack’s unsecured creditor constituency, which is owed collectively more than $500 million. That is in addition to the roughly $500 million in secured loans that RadioShack piled on in failed efforts to mount a turnaround.

The Fort Worth, Texas company is heading toward an auction that it hopes will allow it to save about half of the 4,000 stores it brought with it to chapter 11 bankruptcy.

Documents are still not finalized for RadioShack’s $285 million bankruptcy loan, and lawyers are still working on the orders that set out the rules for a late-March auction, with big lender Standard General LP in the role of lead bidder. Hopes are that Standard General and ally Sprint can salvage some of RadioShack, but the auction is a come-one, come-all affair, and the electronics retailer could still end up in the hands of the liquidators.

Judge Brendan Shannon on Wednesday said he would approve both the loan and the bid rules but only if lenders agree to cut prices on the deal. He’s also insisting Standard General drop its demands that its secured loans be immunized from creditor challenges. Unsecured creditors want to challenge the validity of the company’s loans, and the judge said he would not cut their inquiry short.

Friday, Standard General lawyer Gregory Werkheiser said there are “still issues to be worked out” in connection with the auction and lead bidder documentation.

Another crop of RadioShack leases, about 575 of them, are still up for sale, as going-out-of-business sales continue. The company has said it can’t last past the end of March and anything not sold or taken over by a new operator by that time will be liquidated.

The lease sales took place under extreme time pressure. For much of the year leading up to the bankruptcy, RadioShack struggled with lenders that allegedly refused to allow the company to close more than a couple hundred stores. That wasn’t enough to make a dent in mounting losses.

Formal efforts to find new tenants for a large collection of doomed stores only began in recent weeks.

“It was quite a fire drill,” said Andrew Graiser of A&G Realty Partners, the firm summoned to run the lease sale. In all, the lease auction removed about 205 stores from RadioShack’s mounting list of liabilities, with landlords or third-party buyers agreeing to absorb many of the costs that would otherwise fall on the distressed retailer.