Today is day 2 of the RadioShack bankruptcy auction. While selling the assets of a company that was once worth billions of dollars that still has thousands of stores isn’t a simple endeavor, the proceedings are going even slower than anticipated because other creditors object to the current high bid from Standard General.

Why would anyone have a problem with a bid that’s $20 million higher than other offers for the RadioShack brand and its leases, when the company owes them money? Standard General is a hedge fund that lent Radio Shack tens of millions of dollars in its time of need, and is now using that debt as currency in its auction bid. That’s not illegal, but junior creditors find it rather sketchy.

Just like people, companies have secured and unsecured creditors. A secured debt would be a home mortgage or a car loan: there is something for your creditors to take away if you stop making payments. An unsecured line of credit is more like a credit card. Unsecured debts have higher interest rates to compensate for the risk that these creditors will be sent to the end of the line if a company files for Chapter 11 bankruptcy and sells its parts to the highest bidders to pay off creditors.

Standard General’s bid is the highest, but may not reflect the actual market for the smoldering remains of RadioShack because they plan to pay with money that RadioShack already owes them rather than cash. The next highest bidders are liquidators, who would do exactly what it sounds like: sell store inventory and fixtures for whatever money they can get.

RadioShack Auction Held Up on Standard General’s Loan Terms [Wall Street Journal]

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