The day before it was due to make a $7 million interest payment, Alliance Entertainment filed for bankruptcy protection and confirmed it is in talks to sell its Red Ant Entertainment label.
Alliance, which filed for protection in U.S. District Court in New York late Monday, also secured $50 million in temporary financing to keep the doors of the company open and its day-to-day operation intact.
The company’s need for protection from the court is a blow to the growing Alliance, which had designs on becoming the seventh major record company when it named former MCA Music Entertainment Group CEO/
chairman Al Teller as its co-chairman/CEO last year.
The Chapter 11 filing had been expected following the company’s inability to make a $2 million amortization payment on June 30 and its failure to obtain $35 million through an equity infusion by July 1. (Daily Variety, July 2).
Several weeks ago, Alliance execs began debt-restructuring talks, as well as negotiations with creditors to work out settlements in advance of the filing. In addition to possibly staving off filing for protection, this tactic permits a speedier bankruptcy process with fewer delays and expenses once one is filed.
A syndicate of banks led by Chase Manhattan has agreed to provide Alliance with $50 million in debtor-in-possession financing which will help to keep the company operating while it reorganizes.
Alliance will also ask the court for approval to use around $3 million in cash until the DIP is funded, which the court is expected to approve this week.
Teller blamed “Alliance’s growth through acquisition” and a stagnant domestic music market for the company’s high debt and interest expense, which precipitated the filing. He added that he expects daily operations to continue uninterrupted, and that Alliance and affiliated employees will continue to be paid.
Teller also said Alliance and its affiliates will continue with “substantially” more liquidity than in previous months, and that orders will continue to be filled during the reorganization process.
The company is attempting to restructure $322 million in long-term debt and revolving credit, and $204 million in outstanding obligations.
Prior to the filing, five of the six majors agreed to supply Alliance on a cash-only basis.
Red Ant, the growing label bowed by Teller with backing from investment bankers Wasserstein-Perella and run by Randy Phillips and Randy Miller, was excluded from the filing, as was Castle Communications, a U.K. based catalog label.
Teller and WP are presently seeking a buyer for the upstart label, and have had discussions with a number of suitors, including a pair of major distributors.