Tower Emerging from Chapter 11
The music retailer could emerge from its Chapter 11 bankruptcy the same day, making its 35 days in fiscal limbo one of the business world's shortest stays. Faced with crushing debt, and unable to find a buyer, Tower entered Chapter 11 on February 9. It will emerge having shed $80 million in debt, and with a new $100 million line of credit—the financial equivalent of having spent the past month on strict regimen at a fat farm.
The quick turnaround is "a reflection of the fact that Tower is in good shape," Los Angeles investment banker Lloyd Greif told the Associated Press. Greif had been trying to find a buyer for the business over the past year. Tower began seeking a buyer in May of 2003 as its debts mounted.
On February 27 of this year, MTS Inc., Tower's parent organization, won approval for a plan that gives creditors an 85% share of the company, essentially trading debt for equity. Creditors include all the major record labels, which were faced with either bailing the company out by taking control or watching it go under. Tower was $110 million in debt when it filed for Chapter 11 protection, having already sold off some valuable assets, such as its Japanese stores, to stay afloat.
The Solomon family will retain a 15% ownership. Patriarch Russ Solomon opened the first Tower Records store on Watt Avenue in Sacramento in 1960. The Tower empire expanded rapidly in the 1960s and '70s. The stores became landmarks in major cities throughout the world, and were known for stocking almost all available recordings, as well as supporting emerging artists. Like other music retailers, Tower has been hammered by changes that have rocked the music business since the mid-1990s.
Keeping the Solomons involved was a generous and perhaps nostalgic gesture on the part of creditors. Many executives in the music industry began their careers working in Tower Records stores. "It was in everybody's minds and interests to do this," Sony Music vice president Carl Schnock told Dale Kasler of The Sacramento Bee. "Everybody was on the same page about what the strategy was, and how they were going to save the company."
The vast majority of Tower's 93 stores should remain in business after the reorganization, according to Kasler's March 14 in-depth report.