Recording

Mars Music to Be Liquidated

The Mars Music superstore chain has decided to not reorganize under its current ownership and will instead liquidate its assets. A bankruptcy auction 10/23/2002 8:00 AM Eastern

The Mars Music superstore chain has decided to not reorganize under its current ownership and will instead liquidate its assets. A bankruptcy auction will be held this Thursday in Florida.

Liquidator Great American Group has entered an opening bid for all the assets, with plans to liquidate Mars' substantial inventory this fall in "going-out-of-business" sales at the Mars store locations if no higher bids come in. Other potential bidders, however, are reportedly considering buying the assets in order to keep at least some of the stores open under new ownership. According to the bankruptcy filing, several interested parties have already signed non-disclosure agreements and are reviewing both Mars' operations and potential business plans. Aside from liquidators, potential bidders could include investment groups, as well as other MI retailers looking to expand their geographic reach.

Mars founder and CEO Mark Begelman has resigned from the company and the Mars board, but it is not known whether he is working with any of the potential bidder groups.

The liquidation could mean bad news for many in the pro audio industry, both because many manufacturers may not be paid in full--or at all--for goods sold to Mars, and because massive liquidation sales this fall in several major markets could depress sales for other retailers.

As of October 6, 2002, Mars had $63.7 million of inventory at cost, plus another $1.1 million of inventory in a rental pool, according to the bankruptcy document. This inventory has declined since that date as inventory was sold without new goods coming in. The liquidator has agreed to pay roughly 74% of the "at cost" value of the new inventory if its bid is approved, and roughly 26% of the "at cost" value of the rental pool inventory.

Congress Financial, Mars' primary lender, is owed about $33 million in secured loans. Unsecured creditors generally receive payment only after and if secured creditors are paid. Certain other expenses, including attorneys' fees and costs incurred after the start of bankruptcy, also enjoy preference over unsecured creditors.

Nineteen of the 20 top unsecured Mars creditors are musical instrument accessories vendors, with claims totaling over $13.6 million, according to the bankruptcy filings. They include: Roland Corporation, $1,923,424.51; JBL Consumer Products, $1,748,796.78; Fender Musical Instruments, $1,722,773.43; Gibson Nashville, $908,838.99; Kaman Music Corporation, $882,181.78; Korg USA Inc., $878,166.09; Pearl Corporation, $700,769.44; Mackie Designs, $649,881.98; Washburn International, $631,551.17; Jupiter Band Instruments $552,225.98; Crown International, $520,462.37; Shure Brothers Inc., $506.988.43; Audio Technica, $345,768.88; Zildjian, $326,012.29; Line 6 Inc., $323,830.12; Taylor Guitars, $299,105.82; American DJ Supply Inc., $258,650.48; Gemini Sound Products, $256,760.70; and Warner Brothers Publications, $219,940.09.

Creditors with claims too small to put them in the top 20 are not disclosed in the current filings, but it is certain that other musical instrument companies are among those with smaller--but still significant--unsecured claims.

Mars bankruptcy attorney Paul Battista said that there is still hope that unsecured creditors might receive some payment, but that it is uncertain. "The Debtor and the Committee are hopeful that monies will be available for unsecured creditors. We will not know for sure until several other matters get resolved."

For more information, visit Mars Music's Website at www.marsmusic.com.