RadioShack shares fall after covenant breach claims

Radio Shack
Adam Jeffery | CNBC

RadioShack on Tuesday rejected lender Salus Capital's claim that it breached covenants on a $250 million term loan. The electronic retailer said it plans to "vigorously contest" the allegations, calling them "wrong and self-serving."

Shares fell more than 20 percent before recovering a bit in late trading. The stock was last down about 8 percent.

Trading in RadioShack shares had been halted since 10 a.m. ET. (Click here for the latest quotes.)

"We will do everything we can to assure that these claims do not distract us from our ongoing efforts to rationalize our capital structure and transform our business," said Joe Magnacca, RadioShack CEO in a press release.

"This is particularly disturbing in light of meaningful steps we have taken in our turnaround plan, as well as the recapitalization steps announced in October."

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The claims relate to the recapitalization and investment agreement and amendment to the retailer's credit facility that it entered into on October 3, the company said in a statement.

In addition to its previous turnaround efforts, RadioShack said it intended to close 1,100 stores to focus on more profitable locations. However, the company said that plan was blocked by its term lenders.

"It appears to us that the term lenders seek only to advance their particular interests at the expense of all other RadioShack stakeholders and will oppose any common sense business move requiring their consent unless the company agrees to their exorbitant demands," Magnacca said.

RadioShack estimates that the store closures would have boosted overall earnings by an estimated $83 million and created an additional $87 million of liquidity from reduced and focused inventory levels.