Mood Media, a provider of in-store music known for its now-retired Muzak brand, plans to file for Chapter 11 bankruptcy no later than July 30, according to a notice sent to a record label on Wednesday. The company has arranged with debtors a prepackaged plan for reorganization. At the time of the filing, no debtor had filed for relief and no court had approved either the disclosure statement or the plan.
The Austin-based company is best known for Muzak, the background music specialist it purchased in 2011. Since then, Mood Media has built a one-stop shop for in-store products from music to scents, digital signage and, and most recently, germicidal protection products.
The docket lists a total of $680 million in claims owed to five classes of claimants. The company has approximately $17.9 million in other secured claims and $3.8 million of other priority claims; the secured credits are first in line for repayment. The owners of first lien claims totaling $320 million will receive a pro rata share of a $200 million loan and 100% of the reorganized company’s common equity (subject to dilution by the management incentive program and warrants). In addition, Mood Media owes $330 million to second lien PIK (payment in kind) claims and $8.2 million of general unsecured claims.
Mood Media had debt of $627.5 million on July 1 and cash and cash equivalents of $16.4 million on December 31, 2019, the latest figure on the disclosure statements. It expects to reduce debt by $404 million, according to court documents. It forecasts 2020 net sales to be about $235.4 million, down 32.7% from $349.6 million in 2019.
Several factors helped lead Mood Media to this point, according to a disclosure statement: the COVID-19 pandemic that led to “widespread devastation” and a reorganization of priorities at its retail clients; stronger competition; higher music licensing costs; and an inability to spend on innovation while “manag[ing] its significant leverage” while spending on innovation to meet clients’ changing needs. Also, Mood Media’s 2019 acquisition of Focus Four, using term loan debt and newly issued notes made its overall debt less manageable.
If the plan proceeds it will mark Mood Media’s second bankruptcy in four years. In 2017, the company filed for bankruptcy to restructured $650 million of notes. It reached an agreement with Apollo Global Management GSO Partners to swap debt for equity in the company.
The document lists SoundExchange, the collecting organization for digital performances, as one of the claimants. Mood Media was sued by SoundExchange in 2015 for allegedly underpaying royalties for satellite and cable music subscribers for roughly $20 million, according to a Mood Media SEC filing. A settlement achieved weeks later gave SoundExchange a $5 million claim plus “undisputed accrued and unpaid” royalties.