DMX files for Chapter 11, plans sale via auction

New York, Feb. 14 - DMX Music, Inc. filed for Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware and asked the court to approve a sale by auction.

The company's proposed stalking horse bidder is THP Capstar, Inc., selected by Ernst & Young Corporate Finance LLC after approaching 119 potential buyers.

THP Capstar's offer is supported by the bank lenders, according to court documents, even though the bid is only $75 million compared to the $86 million owing on the company's bank debt.

DMX, a Los Angeles provider of music, video and entertainment to businesses, consumers and airlines, said it decided that a Chapter 11 filing was the best method to carry out the sale.

The company also noted that although it is now generating cash - free cash flow was positive $6 million in 2004 - it is unable to service its bank debt and other claims.

To implement the sale, DMX is proposing an auction on April 20.

DMX's pre-bankruptcy bank debt is made up of $75 million of term loans (out of an original $90 million amount) and $11 million of revolver borrowings. Royal Bank of Canada is agent for the facility.

Liberty Digital, Inc. owns a further $35 million principal amount of the loans on a last-out basis, which makes the debt subordinate to the other bank loans, and is owed $7 million of interest.

DMX also owes $41 million in unsecured debt to Liberty Digital and former shareholders of AEI, a company acquired by DMX, and $13 million of trade debt.

Royal Bank of Canada was listed as the largest unsecured creditor - a list which also includes secured creditors when the assets are not sufficient to cover the liabilities - with $20.64 million of senior secured bank debt, Credit Lyonnais and Silver Point Capital LP are second with $17.2 million each of senior secured bank debt, followed by Bank of Tokyo-Mitsubishi, Bank of New York and Deutsche Bank with $10.32 million each of senior secured bank debt. BMI General Licensing of Nashville, Tenn., is owed $3.95 million for music rights and royalties and ASCAP of New York is owed $1.11 million for music rights and royalties. The list excludes insiders.

DMX is asking the court to authorize a $10 million debtor-in-possession revolving financing facility. Interim availability will be $3 million.

RBC as agent and other pre-petition lenders - excluding Liberty Digital - will be banks for the DIP.

Interest is at Prime plus 225 basis points.

The DIP facility has an agency fee of $200,000 and a commitment fee of $500,000.

The DIP terminates on June 30 or earlier if the Chapter 11 reorganization is completed or all the company's assets sold.

DMX's case is under parent company Maxide Acquisition, Inc. and the number is 05-10429.

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