Tower Records is expected to make a pre-negotiated Chapter 11 filing by the end of the month, sources say.
The filing will be made in order to achieve a “cram down” on some bondholders, who are said to control about 3% of the $110 million in Tower debentures, and who are opposing the portion of the restructuring plan that calls for the conversion of the bonds to equity, sources say.
The major suppliers are said to be supporting the filing because it calls for vendors to be paid in full on their Tower account receivables. Similarly, sources say, Tower’s secured lenders — the banks supplying the chain’s current revolving credit facility and the ones due $25 million on the old revolver that was turned into a term loan — are said to be supporting the plan.
If the court approves, it will give the bondholders a significant majority ownership in Tower, leaving a small stake to the family trust of chairman emeritus Russ Solomon, who is expected to remain with the company.
The whole process is expected to take 30-90 days, sources say.
Then, the company can turn its attention back to the auction process begun by Greif & Co., which so far has flushed out at least five suitors. In addition to a new, unknown bidder, the suitors are Hicks, Muse, Tate & Furst, a well-known investment firm; the Yucaipa Cos., which owns Alliance Entertainment Corp.; Sun Capital Partners, which owns the Musicland Group; and Pamlico & Co., a firm formed by former music and video executives Ralph King and Devandra Mishra to acquire Tower (Billboard, Dec. 27).
Tower executives did not return a call for comment.
