Musicland files Chapter 11; has commitment for $75 million in DIP financing

By Caroline Salls

Pittsburgh, Jan. 12 - Musicland Holding Corp. filed for Chapter 11 bankruptcy Thursday with the U.S. Bankruptcy Court for the Southern District of New York amid financial difficulties related to a diminishing music and movies marketplace, growing competition from "big box" retailers and the increase of music downloading, according to a company news release.

The company said it believes the move is necessary to complete its restructuring initiatives and refine its business model.

Musicland has received commitments for up to $75 million in debtor-in-possession financing from its existing bank group, led by Wachovia as agent, which will enable it to continue to operate during the restructuring period.

Terms of the DIP were not yet available.

According to court document, the company listed zero to $50,000 in assets and more than $100 million in debt.

Musicland's largest unsecured creditors include:

• Deluxe Media Services of Vernon Hills, Ill., with a $7.98 million trade debt claim;

• NBC Universal/Universal Studios Home Entertainment of Universal City, Calif., with a $6.88 million trade debt claim;

• Navarre Corp. of New Hope, Minn., with a $6.69 million trade debt claim;

• Ventura Distribution Inc. of Thousand Oaks, Calif., with a $5.85 million trade debt claim;

• AEC One Stop Group Inc. of Coral Springs, Fla., with a $3.79 million trade debt claim;

• Funimation Products Ltd. of Forth Worth, Texas, with a $3.09 million trade debt claim;

• Electronic Arts of Redwood City, Calif., with a $2.8 million trade debt claim;

• Fender Musical Instrument of Scottsdale, Ariz., with a $2.47 million trade debt claim;

• Zimmerman Partners Advertising of Ft. Lauderdale, Fla., with a $2.44 million trade debt claim; and

• A D Vision Inc. of Houston, with a $2.34 million trade debt claim.

"We have been exploring various options for cutting costs, such as the impending closure of the Media Play chain," president and chief executive officer Michael J. Madden said in the release.

"We believe that the decisive action we are taking provides the company with the most effective means to restructure our operations, strengthen our balance sheet and position us to compete more effectively in the current music and movies industry environment."

During the restructuring process, vendors will be paid for post-bankruptcy purchases of goods and services in the ordinary course of business.

The company has asked the court's permission to continue to honor its current customer policies regarding merchandise returns and to honor outstanding gift cards and loyalty programs, so that there will be limited impact on customers.

Musicland is a Minnetonka, Minn., specialty retailer of pre-recorded entertainment software products. Its Chapter 11 case number is 06-10064.

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