Tower Records Bankrupt Again

[DougMash]

As a CD store owner on Long Island, the news means three less competitors for me, but I still have fond memories of trips to NYC chiefly to go to Tower's 4th & Broadway store before hitting Sounds on St. Marks. Saw Paul Weller & Robyn Hitchcock do instores and met XTC there, so I do owe them that.

I was wondering what everyone makes of the probable demise of the red-on-yellow signed destination for many of us since the days of vinyl:

August 11, 2006, 12:00 PM ET
Tower On Shaky Ground, Again

By Ed Christman, N.Y.

Tower Records is facing an imminent Chapter 11. That’s a certainty, according to top major-label distribution and financial executives, all speaking on condition of anonymity.

But what kind of filing will it be? A prepackaged Chapter 11 deal with an equity sponsor in tow to take over ownership of the company that also has the blessing of the creditors? A Chapter 11, 363 asset-purchase agreement, with the “stalking horse” bid setting the floor price for other suitors to bid against?

That kind of filing would leave the creditors to fight over the proceeds from the asset sale and wrangle with their emotions about whether they will support a new owner going forward. Or could the filing turn into an outright liquidation?

Most industry executives believe it will be one of the first two options. But as the second week in August came to a close, they were still waiting to see if Tower’s bank—CIT Financial, the senior secured lender—would support the retailer through a Chapter 11 process or force the chain into liquidation.

Tower, which has been up for sale since February, met with CIT Aug. 8, according to label executives, some of whom say that CIT is pushing for a liquidation, but will wait roughly two weeks to close a pending deal with a private equity firm.

All four majors placed the chain on credit hold on the eve of NARM’s annual convention. When word leaked out at the beginning of the event on Aug. 3, most other suppliers followed suit, and that means Tower can only buy product with cash upfront.

“Deep down, the industry is pulling for Tower, but a lot depends on how patient the bank is,” one major-label financial executive says. “If they start sweeping the cash [from Tower stores’ nightly deposit out of the company’s account] and say ‘liquidate,’ then there is nothing we can do.”

Tower Records has already been through one Chapter 11 filing, in March 2004, when a prepackaged, 35-day long process resulted in the retailer becoming majority-owned by a consortium of bondholders.

Label sources trace Tower’s current predicament to shorting one of the majors by about $1 million on July payments, with the promise to pay by Aug. 1. Some time during that period, a deal for an unnamed suitor to acquire Tower fell through, sources say. At around the same time, CEO Allen Rodriguez was replaced by new interim CEO Joe D’Amico from FTI Palladium, a financial consulting firm, after the former’s contract ran out.

Sources say D’Amico’s first move was to stop the $1 million payment. His second? He gave word to all four majors that the chain would not make August product payments, which were due starting Aug. 10. Sources say Tower owes product suppliers approximately $90 million.

Sources suggest that Tower has drawn down the maximum amount available from its $100 million revolving credit facility, supplied by CIT Group/Business Credit.

Now the majors will have to see a signed deal sheet or cash before they agree to work with Tower again.

While the majors awaited word on how the meeting with CIT went, Houlihan Lokey Howard & Zukin was working behind the scenes to bring in an equity sponsor. The Los Angeles-based investment bank had already conducted two rounds of bidding, which yielded two letters of intent to buy the troubled chain, sources say. One of those suitors was said to be HM Capital; the other is unknown.

But the deal broke down when the Tower board apparently told the bidder that it was looking elsewhere for a higher bid. Six weeks later when the board was ready to do a deal, the bidder’s check of the chain’s books revealed Tower was close to insolvent. That prompted that bidder to rescind its offer.

According to sources, that marks the second time the Tower board has had the chain sold, but either turned down the sale or blew the deal. When Tower was up for sale in the summer of 2004, the board reportedly refused a bid for about $180 million in cash and debt.

Since this most recent bid was withdrawn, Tower’s investment bank has been trying to convince that bidder to become an equity sponsor for a prepackaged Chapter 11 filing, sources say. Meanwhile, amid speculation that Trans World Entertainment is already looking at Tower, sources say that’s untrue. However, in the event of a Chapter 11 filing and a subsequent asset sale, Trans World is expected to sit at the table.

Another interested suitor with financial backing from a foreign private equity firm says that group would also come to a bidding party, should it be conducted by the court. In addition, sources say another well-known retail executive backed by a private equity firm also wants to bid on the chain but so far has been kept at bay by Houlihan Lokey.

With all that interest in Tower, executives from two different majors—who were both furious when Tower won the NARM large retailer of the year award—said they would support a Chapter 11 sale despite the pain it would inflict on suppliers.

“Of course I want somebody to get in there and buy the chain,” one major-label distribution president says. “Can you imagine the blow to the industry if Tower Records on Sunset Boulevard became boarded up?”

[zalasta]

The problems of Tower Records are sad.. i have fond memories of going to Tower Records in the D.C. area when I was a kid. i came from a small town with limited options for buying music, so I always thought it was a huge deal to be able to go to Tower Records. I still shop there - they are much better than the Best Buys of the world, and I don't have any many local options as far as independent stores are concerned. Hopefully things will work out for them.


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[Barmy]

I live in Manhattan, where we have 2. It's hard to care. Amazon is cheaper and of course has better selection. The stores tend to be pretty empty. This sort of store has outlived its usefulness.

[Bitter Almonds]

<p align="justify">Aye, it has. They should think of a quick way to liquidate their assets and start as an on-line retailer - the way most everyone is nowadays.

[geoffolehane]

Tower in Boston was THE place to go during the late 80's for me. They had the best prices and the widest selecion. But then Newbury Comics became THE place to go in the 90's and it still is for Greater Boston. Their prices are the lowest around and their selection of used and obscure stuff is incomparable. You can only get a better selection online. I actually live in New Hampshire and three of their four NH stores are all within a half hour of me.

Once in a while I hit the Tower in Burlington, Mass but I think they've raieed their prices and there's a Newbury's in the next shopping plaza over.

[Crimsor]

I havent been to Tower Records in a long time. I guess I agree, that it kind of outlived its usefulness to some extent. The one on 4th and Broadway was in an area with so many small record stores that the selection of that one store couldnt live up to. However, I remember going to the Tower in Carle Place, LI back in the late 80s and that one had a an unrivaled selection. Well, at least what a 15 or so year old, like myself, at the time thought was unrivaled. I lived in Brookyln so when we did go to LI, I knew they would at least have way more new wave stuff than any of the stores around me!

[newwavepunkgirl]

OMG are tower records still going? Only just though from the sounds of things!I think there used to be one in London in the 80s and I have been to the Boston MA one!

Devolution is real

[rotator]

Tower records always had a really great import section (at least the one on El Cajon Blvd in San Diego)...very expensive, but it seemed as if they hired people that knew their shit. as I don't purchase CD's anymore Towers collapse means little to me, but I still have fond memories of the halcyon days...

[jaybag]

I will be seriously [:(] if Tower goes under. There's a Tower within walking distance of my home in Pasadena CA. They're great about having these new artists at low prices. Too expensive for the mainstream stuff (and the imports) but great for everything else. And their selection is the best anywhere. Somebody buy this chain, dammit!

[Barmy]

They are one of the best chains, but since all chains are a waste of space that's not much of an accomplishment.

[googoomuc]

I remember Tower Records as great store. The store in San Diego is still across the street from the sports arena where I would go see concerts in the mid 70`s and buy lps after the show. I used to pay 3-5 bucks for lps.
In the early 80`s they had a great import department and great buyers for the stores,but at some point in the late 80`s they seem to loose there way.I would go in and leave empty handed which was rare for me.
I also shopped the Tower in NYC,uptown store and the one on 4th. I was shopping late one night and I swear they put a stink bomb in the air ducts to get shoppers to leave when they closed at midnight.
Brick and Mortar music chains are a dying breed...Everyone shops online..

[deethelurker]

Eh. I'm not that torn up. Not like Tower Records have been everywhere. And I think I've only ever been to a Tower maybe once in my life, when I was doing a summer term at a London university and paid a visit to a Tower and was decidedly underwhelmed. I guess it was because it looked old and had a lot of stuff I wasn't interested in (vs. the Virgin Megastore, which stunned the f*** out of me). However, I do vividly remember when Wherehouse Music closed, which I *did* have plenty of experiences with and was pretty bummed about. I've always been a local chain gal, though. There's this one local chain I'd be heartbroken over if it closed, mainly because it's the only stand-alone music store chain here in town and they have a really decent music selection.

[highway1pch]

Tower Records Founder Might Bid to Save Retail Chain
By Vivien Schweitzer
24 Aug 2006

Tower Records founder Russ Solomon will possibly make a bid to buy the embattled music retailer he founded in 1960 out of bankruptcy, reports the Sacramento Bee.

Solomon is one of nine potential bidders interested in purchasing the ailing company, according to the paper. Other candidates include Trans World Entertainment Corp., several private equity firms and a Chicago real estate developer.

Solomon, 80, is still a member of Tower's board of directors. His family gave up 85 percent ownership of the company to bondholders during its previous bankruptcy crisis, in 2004, but he retains a 15 percent share, according to the Bee.

Many of the private-equity firms listed as potential bidders often rescue struggling companies. Stuart Jamieson of Radius Equity Partners of Chicago, which is a potential bidder, told the Bee, "We are specialists in buying distressed companies. We like to come in, find out what's wrong ... and see if we can fix them. We believe there is a need for companies like Tower Records, (but) it can't be sitting there selling the same stuff they've been selling."

According to the Bee, other potential bidders include Dallas-based Highland Capital Management and HM Capital; Bayside Capital of Miami; Los Angeles-based Balmoral Advisors and Platinum Equity; and Chicago real estate developer Centrum Properties Inc.

Dow Jones Newswires reported earlier this week that Tower Records, which has 89 stores in 20 states, filed for Chapter 11 bankruptcy protection on August 20. According to the agency, the troubled company decided to put itself up for sale through a court-supervised auction scheduled for October 5. Tower wants to finalize the sale by mid-October to give itself enough time to prepare for the busy holiday season, which usually accounts for about one-third of its annual sales.

Tower's revenue fell to $430 million for the fiscal year ending July 31 from $476.1 million the previous year, according to Dow Jones.

Like other brick-and-mortar music and book stores, Tower has faced significant competition from online retailers as well as discount chains. Earlier this month, The Los Angeles Times reported that Universal Music Group, Warner Music Group and EMI Music had suspended CD shipments to the Sacramento-based chain after it stopped paying its bills. Sony BMG had also reportedly stopped shipments, although the paper was not able to confirm it at the time.

Tower recently appointed crisis management and bankruptcy specialist Joseph D'Amico as chief executive.

http://www.playbillarts.com/news/article/5111.html

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[geoffolehane]

But he's 80 years old. Even if he buys it I wonder how long he'll stay alive to run it.

[DSR]

GOODLUCK TO TOWER RECORDS![;)] I think TOWER RECORDS PHILIPPINES is stable enough.[8D] That's only my opinion.[8D]

[:)]An apple a day keeps the doctor away!
DSR