Radioshack receives a boost

In a day dominated by macro news, Radioshack provided one of the few notable single-name stories.

The beleaguered US electronics retailer is trying to refinance existing loans with new, lower cost debt, according to reports. Radioshack's finances are in a dire state after several years of declining earnings, and the market is pricing in a 75% probability of default in the next five years.

Nonetheless, credit investors welcomed the news today, with its cost of protection falling to 28.5 points upfront from 30.5. This is an improvement from the 39 points seen at the beginning of this year.

But this is still in distressed territory (it is equivalent to about 1,500bps), and it will take more than a single wire report to turn around Radioshack's fortunes. It is losing market share and has had to resort to deep discounting in a desperate effort to shore up sales. The company's liquidity situation is worsening, with negative operating cash flow, and it is questionable that lenders will give management the chance to salvage the firm.

Radioshack's CDS are highly liquid - a Markit Liquidity Score of '1' - and it will remain the key indicator to watch for credit distress.

Elsewhere, the credit markets were flat as concerns about rising government bond yields were offset by better than expected eurozone GDP figures. Germany and France - the core of the currency bloc - grew by 0.7% and 0.5% respectively in the second quarter. Portugal also provided a pleasant surprise by growing 1.1%, the strongest performance in the European Union. But the rest of the periphery continued to struggle, with Spain, Italy, Greece and Cyprus all contracting. The growth dichotomy in the eurozone shows no sign of disappearing.

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