Mood Media, the parent company to in-store media provider Muzak, has asked a New York federal bankruptcy court for Chapter 15 protection while it restructures $650 million in outstanding debt in Canada after suffering financial difficulties caused by technological changes and licensing issues.
Perhaps known best for providing instrumental background music for department store shoppers, Mood Media Corp. is looking to keep its in-store media business afloat after suffering setbacks caused by emerging media technologies, increased competition for licensing popular songs and music piracy, the company said.
In court papers filed Monday, Mood Media said it seeks legal cover in the U.S. while it implements a prepackaged plan to reorganize with creditors in proceedings initiated last week in Canada, where the company is centralized.
With the assistance of a $315 million bankruptcy loan, Mood Media plans to restructure by implementing a traditional debt for equity conversion that will provide compensation for unsecured creditors holding $350 million worth of notes, while leaving other bondholders unimpaired.
Michael F. Zendan, the company’s executive vice president and general counsel, said in a declaration to the court that the proceedings will permit the company to quickly confirm its restructuring strategy while preserving the rights of U.S.-based creditors.
“I submit that recognition of the Canadian proceedings is necessary and appropriate for the benefit of the debtors, their creditors, and other parties in interest,” he said.
Mood Media, along with affiliated debtor entities, provides in-store media and marketing services to companies throughout the world, including big name retailers and manufacturers. Beyond tailoring music for customers, the company also produces interactive video advertising, offers mobile sales channels and even provides signature fragrances to enhance the customer experience.
Despite reporting more than $465 million in revenue last year, the company said it is facing difficulties due to the diversity of existing technologies offered by competitors, increased competition for the acquisition of rights to music recordings and unauthorized distribution and copying of content.
“Unauthorized copies and piracy have contributed to the decrease in the volume of legitimate sales of music and video content and services and have put upward pressure on the price of products sold through legitimate sales channels,” Zendan said.
Muzak, a background "elevator music" provider that hit bankruptcy in the U.S. in 2009, was purchased by Mood Media in 2011.
Entering Chapter 15, Mood Media owes $250 million under a secured term loan facility and $400 million to unsecured noteholders. Additionally, the debtors have more than 183 million shares of common stock issued and outstanding, the company said.
As part of its restructuring, the company will offer select unsecured noteholders new second lien notes, new common shares, and additional common shares for those noteholders that contribute new capital. The plan will be facilitated in part by acquiring and redeeming all outstanding shares of stock.
On Wednesday, U.S. Bankruptcy Judge Michael E. Wiles signed an order preventing investors from terminating, amending or declaring default on any agreement to which any of the debtors is a party.
A hearing for recognition is scheduled for June 23, just days after the debtors expect to present their restructuring plan to a court in Canada for approval.
The foreign representative is represented by Edward O. Sassower, Joshua A. Sussberg, James H.M. Sprayregen, Adam C. Paul, Bradley Thomas Giordano and Whitney C. Fogelberg of Kirkland & Ellis LLP.
The case is In re: Mood Media Corp. et al., case number 1:17-bk-11413, in the U.S. Bankruptcy Court for the Southern District of New York.
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