UPDATE! Canton, Mass. — Cash-strapped Tweeter Home Entertainment Group has filed for Chapter 11 bankruptcy protection. The move comes one month after the struggling A/V specialty chain warned that it may be forced to reorganize under the bankruptcy code due to insufficient working capital. The company said it has also filed a series of first-day motions, including one seeking authority to tap into a new $60 million loan from General Electric Capital Corp., which would allow it to continue normal business operations. “After considering a wide range of alternatives, it became clear that this course of action was a necessary and responsible step toward preserving Tweeter’s viability as we address our financial challenges and work to secure our future,” said president/CEO Joe McGuire. In the meantime, the company expects to keep all ongoing stores open for business as usual, and will pay vendors, suppliers and other business partners for goods and services provided after the filing. Tweeter has also received approval from the bankruptcy court to allow it to pay the pre-petition claims of certain “critical vendors” in exchange for their agreement to continue supplying goods and service to the chain. Manufacturers holding the largest unsecured claims against Tweeter include:
Polk Audio, $1.2 million;
Omnimount Systems, $388,244;
Universal Remote Control, $333,513;
DirecTV, $326,524; and
JL Audio, $301,460.
In a conference call, McGuire said he didn’t anticipate any change in Tweeter’s present brand assortment. Tweeter will also honor its customer service policies including returns, exchanges, credits and layaway programs, and will continue to pay employee wages and salaries. Benefits, including medical, dental, life insurance, disability and vacation, will remain unchanged. Central to maintaining operations is GE’s $60 million secured debtor-in-possession (DIP) credit facility. Tweeter intends to use the post-petition liquidity to purchase merchandise, pay salaries and benefits, and for other general corporate purposes. The voluntary petition was filed today in U.S. Bankruptcy Court for the District of Delaware. The company, hobbled by slipping sales and costs associated with the closing of a third of its store base — including hefty lease termination payouts — acknowledged last month that it was contemplating the move. Chapter 11 protection will allow Tweeter to extricate itself from its lease agreements, while the DIP facility “provides liquidity we wouldn’t have otherwise,” McGuire said. McGuire said additional layoffs may be in the offing as the company continues to right-size its business and expense structure, and acknowledged that financial buyers have expressed an interest in the chain. “We could emerge from the reorganization as a private company,” he said. “I am confident that, with our tremendous talent pool of the best-trained, most knowledgeable sales and installation teams in the business, we will emerge from this process as a stronger, more competitive organization that is well-positioned to respond to and succeed in the ever-changing consumer electronics industry,” McGuire said. Tweeter is hoping to buy more time while its new Playground-format stores continue to gain traction. In a conference call last month, McGuire said the new units are outperforming their older counterparts in margin, sales and in-home installations within their respective markets, and he reiterated today that rolling the concept into the company’s remaining 104 stores is central to its strategy going forward. In the meantime, sales continued to soften during the most recent full quarter, with net and comp-store sales from continuing operations both declining 13 percent during the three months, ended March 31.