Derivatives linked to RadioShack Corp. debt imply the retailer has an 84 percent chance of default within five years, a level Eastman Kodak Co. and AMR Corp. reached within six months of filing bankruptcy protection.
Credit-default swaps on the Fort Worth, Texas-based electronics chain's debt have been rising since January, when they indicated a 50 percent default risk, jumping after the company reported a second-quarter loss last week. Kodak hit the 84 percent level on July 18, 2011, six months before it filed.
Investors are concerned RadioShack may burn through its $517.7 million of cash as competition from online and discount retailers such as Amazon.com Inc. to Wal-Mart Stores Inc. squeeze margins at electronics chains including RadioShack and Best Buy Co. RadioShack is concentrating on low-margin mobile phones, prompting Standard & Poor's to downgrade it yesterday to B-, six levels below investment grade, with a negative outlook.
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