The debtor-in-possession loan for Musicland Group has been structured so that secured lenders will receive maximum value on their investments by holding the company to a strict timetable and strategy, said Craig Wassenaar, cfo. Musicland has secured a 15-month, $75 million DIP loan that allows the company to stay in business while it considers how it will run its operations going forward. Wassenaar said the company may choose to either submit a business plan that would allow it to operate as a stand-alone entity or put the business up for sale. Alternatively, it may choose to liquidate.
Wachovia Bank structured the DIP and put in place the provision that requires the company to submit a business plan or be put up for sale through an auction process that would take place March 22. "We feel that the process as outlined was a reasonable requirement of the lenders," said Wassenaar. "It will ensure the secured creditors realize maximum value." Last week, Trans World Entertainment, a music, video and video games retailer, submitted a bid for the company. If Musicland chooses to sell, Trans World's offer would be subject to competitive bidding at the auction. The offer would also have to be approved by the United States Bankruptcy Court for the Southern District of New York.
The DIP, which is secured by all of the company's assets, is priced at LIBOR plus 3 1/4%. "The pricing is fair and in line with other banks," said the cfo.