Muzak Holdings LLC Prepares To Emerge From Chapter 11 Bankruptcy

February 1st, 2010 by Reed Allmand

Muzak Holding LLC a music and entertainment company which provides background music in stores, hotels and elevators just received approval of its Chapter 11 bankruptcy reorganization plan and hopes to exit Chapter 11 bankruptcy in late January.  The company, which filed for bankruptcy protection in February to restructure maturing debt, was able to slash its debt burden to less than half of what it was when it originally filed bankruptcy.

Under the company’s reorganization plan, its lenders are swapping debt in the company for equity, cutting Muzak’s outstanding debt to just $230 million. The company had more than double that when it filed for bankruptcy last year.

Muzak’s imminent road to bankruptcy began in the Spring of 2007 when its attempt to merge with DMX Inc. in an effort to handle $436 million in maturing debt fell apart.  And due to the contraction of the credit markets at that time, Muzak was unable to find financing for its debt, making bankruptcy the best option despite its reportedly positive balance sheet.

The company has said its Chapter 11 filing, from an operational standpoint was “largely unnecessary,” and that even as the global economic crisis caused cutbacks in business spending in 2008, the company continued to generate positive cash flow from operations.

However, Muzak client retention rates were suppressed in 2009 as many retail stores closed and terminated their Muzak agreements.  According to Muzak representatives, bankruptcy has allowed the company to reduce its debt and refocus its attention on innovation, marketing and client relationships.