MTS fails to pay interest on notes within grace period

By Carlise Newman

Chicago, June 3 - MTS Inc. said it will not make the $5,156,250 interest payment that was due May 1 on its 9 3/8% senior subordinated notes due 2005 at the expiration of the 30-day grace period, resulting in an event of default.

As a result of the event of default, the trustee under the note indenture or the holders of at least 25% of the notes could accelerate payment.

With the assistance of its financial advisor, Jefferies & Co., Inc., MTS is in discussions with noteholders about a restructuring. But it added in a filing with the Securities and Exchange Commission that so far no understanding or agreement has been reached.

The occurrence of an event of default under the note indenture triggers the cross-default provisions in the company's credit facility and term loan agreements.

MTS said it has received an interim forbearance agreement from its senior lenders, with the CIT Group/Business Credit, Inc. as agent.

The company is in discussions with its senior lenders for an extended forbearance agreement and amendments to its credit facility, and MTS' senior lenders are continuing to provide funding under its credit facility.

MTS, based in West Sacramento, Calif., is the parent of Tower Records.

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