TOWER CEO SPEAKS OUT ON CHAPTER 11 FILING

Coming as a surprise to no one, Tower Records filed for a pre packaged Chapter 11 in order to force the hand of some uncooperative bondholders. The plan calls for the $110 million in bond debt to be reissued as senior notes worth $30 million, or around 27 cents on the dollar. But the bondholders also will now also receive an 85% equity in the company, ending the private rule of a dynasty that was started in 1962 by the godfather of music specialty retail, Russ Solomon. The Solomon Family will hold on to 15% of the equity and Russ will continue on as a board member and Chairman Emeritus.

But is a sale still imminent? CEO Rodriguez insists one has nothing to do with the other: "Over the last month, there’s been a sense in the press that we had to sell the company or the bond deal would blow up. The bond deal was cut and set five months ago, and whether the company was sold or not, it didn’t affect the deal."

And even though many believe a sale is still inevitable, Rodriguez says not to expect one during the proceedings. "Our focus over the next 45 to 60 days is to see that we get in and out of this smoothly, and then we’ll move forward from there."

What about the rumors of wholesale store closures?

"A year ago we announced that we would be closing 13 stores. We’ve closed eight so far and have announced that we’ll close another two that we would have closed whether or not he had filed Chapter 11. More importantly, 90 of our 93 stores are profitable."

The plan has such widespread industry support, that it is expected to run its course with virtually no opposition. Rodriguez also debunks rumors that smaller independents would not get the same deal, 100 cents on the dollar, as the majors: "None of our vendors or suppliers are taking a haircut."

The prepack is simply to deal with the dissenting 3% of the bondholders. If it had only been 1%, says Rodriguez, Tower probably would have paid them their 100 cents on the dollar to "not go through the hassle of Chapter 11." But at 3%, Tower was forced to "cram down" the holdouts and force them to accept the deal.

When the bankruptcy is completed, will they need to sell the company to survive? "Not at all," argues Rodriguez, "Our cash flow is strong and more than sufficient to meet the going-forward debt service that is required." That being said, Los Angeles-based Lloyd Grief and Co. is still said to be working on finding an appropriate suitor.