RadioShack Credit Default Swap Market Shows Even Worse Problems

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RadioShack Corp. (NYSE: RSH) is on its way out — almost certainly for good. We have warned over and over that this company will not survive, including that it was on the way to becoming a penny stock and could face a likely delisting from the New York Stock Exchange.

Now, here we are with a fresh warning from Fitch Ratings, via its Fitch Solutions unit that tracks the credit default swap (CDS) market, indicating the worst CDS spreads in the history of RadioShack.

RadioShack’s recent CDS spreads have maneuvered it into a predicament. They are now trading at their widest-ever levels, according to the latest CDS case study from Fitch Solutions. Within the past month, five-year CDSs on RadioShack have widened 70%, most of this has occurred within the past week.

Fitch’s analyst pointed out that the markets appear increasingly concerned over RadioShack’s weak sales. This is likely why CDSs have come out so significantly in such a short time. RadioShack’s credit default swaps were trading within the top 10% globally only a quarter ago, and the beginning of August has its CDS trading at 65%. The wide spreads have been a signal to apprehensive investors who also doubt its liquidity.

24/7 Wall St. would again remind readers that this should be of no surprise. The long and short of the matter is that what Fitch is telling you, even after it warned of bankruptcy itself, is that credit investors (and perhaps other investors) are betting on or protecting their prior investments that were made in RadioShack.

We have made so many warnings on RadioShack that we just cannot imagine how anyone would be surprised here. RadioShack’s only logical outcome is one in which its creditors own the company — and likely will pursue an outright liquidation rather than a restructuring and reorganization.

It is sad to admit, but the world has simply passed a time where RadioShack is relevant.

RadioShack shares now trade around $0.65, down from a high of $4.36. RadioShack could not find any buyers even when it had much higher cash and assets. The notion that RadioShack was a $20 stock as recently as 2010 is now about as relevant as RadioShack’s market position against its peers.

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