RadioShack Creditors Question Bankruptcy Timing

Image courtesy of (Mike Mozart)

Experts and ordinary shoppers alike have been predicting the demise of RadioShack for some time now. The only question was when it would happen. A rescue financing package kept the company going for a while longer, but the company’s creditors allege that there was a very important reason for that: to line the pockets of lenders and distressed debt traders.

We don’t have the document that’s part of the Shack’s bankruptcy filing yet, but the Wall Street Journal reports that this complaint comes from the junior creditors in Radio Shack’s bankruptcy, which include suppliers and mall landlords. A company has senior and junior creditors, where they pay higher or lower interest rates according to the seniority of the debt. Senior creditors are more likely to be repaid in the event that a company goes out of business and liquidates.

In the case of Radio Shack, you may remember that new lenders swooped in to save the company when bankruptcy seemed inevitable, and those lenders did things like ban the retailer from closing stores even though it desperately needed to.

Worse, there were investors betting on the possibility that Radio Shack would declare bankruptcy in what’s called a credit default swap. There were people who made money because Radio Shack stayed in business until after December 20, 2014, and the junior creditors want to make sure that major shareholder Standard General wasn’t taking part in these swaps.

Creditors Ask For Probe Into Missed Chances to Save RadioShack [Wall Street Journal]

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