Musicland again tries buying time

The Musicland Group again has gone to the well and asked execs at the Big Six record distributors to allow the chain to defer making payments due on records shipped as part of a move to stave off a bankruptcy filing.

Sources said Musicland chairman-CEO-prexy Jack Eugster called distribution chiefs last week and asked to defer paying a small amount of the overall total due the distribs for two years.

No ho-ho-ho dough

The request has some execs concerned, as it comes at a time when the chain should be flush with Christmas season cash.

The chain also is in negotiations with two investment banking firms that are in a position to give the 750-store Musicland some sought-after capital.

The chain is asking that the payments due to BMG, EMI, Polygram, Sony, Universal and WEA be spread out, with an option to convert the amount due into an equity position in the chain. Terms concerning future shipments also are being negotiated.

But the chain’s bills also are highest at this time of the year, and while Eugster is not asking for any forgiveness, the chain’s numbers are giving some execs and Wall Streeters concern.

Sources said the company has more than $600 million due its major vendors.

In October, execs at the Big Six agreed to give Musicland an extension on its payments for records shipped (Daily Variety, Oct. 28).

Though most record execs believe Musicland will stay in business, the industry also has a vested interested in keeping the chain afloat.

Aside from the obvious fallout that, if Musicland folds, the tens of millions of dollars owed to the labels could be lost – or settled at just pennies on the dollar – record execs worry that there appears to be no heir apparent on the near-term horizon.

Musicland also received from one of its banks an extension to March 30 on a seven-figure debt payment that was due by the end of December.

If the chain misses that payment, the bank can call the loan and force the retailer into seeking protection.

Many are hopeful the concessions, coupled with Eugster’s unmitigated desire to keep the chain going, will help the Minneapolis-based operation weather this latest financial storm.

Risk cited

But interested investors, such as Apollo Advisors, the latest firm to enter the frame, as well as Smith Barney, which was hired by Musicland to help find suitors, have suggested the chain is really at risk.

But the firm slowly is turning around.

Last month, Musicland reported sales of $424 million for the five-week period ending Jan. 4, a 2.6% increase over its $413.4 million tally logged in 1995.

The chain already has shuttered more than 50 stores since last month, including 18 Media Play stores, said to be among its most unprofitable with an enormous negative cash flow.

Though more store closures are expected, industry execs view the shuttering as a good sign, as it demonstrates the chain is aggressively working to reduce the possibility of a Chapter 11 filing.

Musicland Group also encompasses the Sam Goody, Suncoast Motion Picture Co., Media Play and On Cue stores.

Execs and Musicland declined to comment. Execs at the Big Six declined to comment, citing confidentiality clauses.

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