SACRAMENTO — Tower Records, a worldwide music, book and video retailer that began in a family drug store, is downplaying the possibility it may have to file for bankruptcy because of tightening credit.
“We have no present intention to file bankruptcy,” company spokeswoman Louise Solomon said Friday, two days after Moody’s Investors Service downgraded Tower’s debt ratings.
Moody’s said it was likely that Tower would file for bankruptcy protection if it could not find additional sources of capital or pay off its current loans in the next few months
In a recent Securities and Exchange Commission report, Tower said its revolving credit facility had been extended for a year, but that the amount the company could borrow had dropped from $275 million to about $225 million.
That’s enough to cover the company’s current needs, Moody’s said, but under the new agreement with lenders the amount of credit available to Tower will drop to $210 million in July, to $195 million in October and to $100 million by December.
Tower said in a statement that it was “actively seeking further external financing.”
Solomon stressed that there was no mention in the SEC report about filing for bankruptcy.
The 41-year-old company has seen its revenue flatten out in recent years as it’s battled competition from aggressive online sellers like Amazon.com and mass merchants like Borders.
In its SEC statement, Tower reported $34.4 million in losses for the quarter ending April 30, compared to a $4.3 million loss in the same period in 2000.
Tower said a large part of the loss was attributable to costs involved in closing “underperforming” stores. The company closed 10 stores and opened one in that three-month period, according to the SEC statement.
The company also said it is negotiating the sale of its operations in Argentina, Taiwan and Hong Kong.
Net revenue for both quarters was $255 million.
Michael Solomon, Tower’s president and chief executive officer, said the company was encouraged by the “revenue stability for the quarter at a time when the revenue trend in retail is down.”
Besides closing the low-performing stores, Tower has eliminated a number of inefficiencies in its operations as part of a restructuring plan.
“We expect positive contributions from that strategy in the quarters ahead,” he said.
Solomon’s father, Russell, started selling records out of his family’s drug store and opened the first Tower Records in 1960 in Sacramento. The company, based in neighboring West Sacramento, now runs 187 stores worldwide.