Tower Records' parent files Chapter 11 bankruptcy to complete company sale process

By Caroline Salls

Pittsburgh, Aug. 21 - MTS Inc. and its subsidiaries, including Tower Records, filed Chapter 11 bankruptcy Sunday in the U.S. Bankruptcy Court for the District of Delaware in order to sell the company, according to a news release.

Under the Section 363 sale process under Chapter 11, the company hopes to complete the sale within 60 days.

"Tower Records has conducted an extensive sale process, and this step will allow buyers to complete a sale in time for the holiday season while maximizing the value for stakeholders," Tower chief executive officer Joseph D'Amico said in the release.

Tower said it is evaluating letters of intent from parties interested in acquiring the company.

According to the motion for approval of the sale bidding procedures, the company must select a stalking horse bidder by Sept. 13.

Competing bids would then be due Sept. 22, and an auction will be held on Oct. 5. The company asked the court to schedule the ensuing sale hearing for Oct. 6.

According to the company's timeline, the sale will close on Oct. 9.

If the selected stalking horse bidder is not the high bidder at auction, MTS will pay it a $500,000 break-up fee and will reimburse it for up to $200,000 in expenses.

In connection with its Chapter 11 filing, the company entered into an $85 million debtor-in-possession financing facility with its current bank group, led by CIT as agent.

The DIP facility includes $10 million for tranche B loans, a $5 million sublimit for letters of credit and a $4.24 million real estate sublimit.

Maturity is Dec. 31.

Interest on the revolving loans will be Prime rate plus 50 basis points. Interest on real estate loans will be 9.5% and interest on tranche B loans will be Prime rate plus 450 bps.

The DIP facility will be used to fund the company's operations and purchases of new products while it completes the sale.

According to court documents, the company has $10 million to $50 million in assets and $50 million to $100 million in debt.

Tower's debt includes a $79 million pre-bankruptcy loan from CIT and $15 million in unsecured debt.

The company's largest unsecured creditors include Six Degrees Records, San Francisco, with a $1.9 million trade debt claim and International Periodical, Chicago, with a $1.28 million trade debt claim.

MTS is a Sacramento, Calif., owner and operator of 89 Tower Records stores in 20 states nationwide. Its Chapter 11 case number is 06-10886.

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