TOWER MOVES ON TO
THE NEXT CHAPTER
Marking one of the most zipless prepackaged bankruptcies in the history of the music business, Tower Records emerged successfully today from a Chapter 11 reorganization filed by parent company MTS Inc. a scant six weeks ago.
It is, however, a bittersweet victory as the court action effectively hands over 85% of the company to bondholders, who agreed to convert Tower’s bond debt to equity. The remaining 15% is being held by founder Russ Solomon, widely acknowledged as the architect of music specialty retail, who is staying on as a board member and Chairman Emeritus.
The reorganization reduced Tower’s debt load by some $80 million, converting $110 million in bond debt to senior notes worth $30 million. The plan also called for full payment to vendors for any pre-bankruptcy petition obligations.
When they first filed on Feb. 9, CEO Allen Rodriguez told HITS: "None of our vendors or suppliers are taking a haircut."
Rodriguez also made it clear that the indies as well as the majors were going to be seeing 100 cents on the dollar. The filing was needed only because some 3% of the bondholders, holding $5.2 million in notes, would not agree to terms. The Chapter 11 was used as a "cram down" to force the recalcitrant bondholders into accepting the new deal.
A total of $100 million in Debtor In Possession (DIP) financing provided by the CIT Group will now be converted into a revolving credit facility.
At the time of the filing, Rodriguez referred to the petition as "the final fix." But many in the industry are now waiting to see if indeed the bondholders want to run the company going forward, or if a sale of the legendary empire is still in the offing.
