Tower Records Files for Chapter 11

Tower Records filed for Chapter 11 bankruptcy protection from its creditors for the second time in less than three years.

The Sacramento-based company, which operates 89 stores in 20 states, sought bankruptcy protection Sunday, with plans to sell its assets through a court-supervised auction. Formally known as MTS Inc., the company asked the U.S. Bankruptcy Court in Wilmington, Del., to approve an auction Oct. 5. Tower said it needed to close the sale by mid-October to prepare for the holiday shopping season, which accounts for about 32% of its annual sales.

Tower owes its top 40 creditors about $16 million, according to its bankruptcy filing.

Analysts said the chain could struggle to find a buyer willing to keep its stores open at a time when consumers are increasingly purchasing music online or at big-box retailers such as Best Buy Co. and Target Corp.

Phil Leigh, a senior analyst for Inside Digital Media Inc., said the Tower brand had value and would find a buyer, but its stores probably wouldn’t survive.

“I think they’ll sell off the name and liquidate the inventory,” Leigh said.

The filing comes weeks after Joseph D’Amico, a crisis management and bankruptcy specialist, was named chief executive -- the third management shuffle in only four years. Tower Records has renegotiated its terms with major music suppliers that had cut off shipments this month for lack of payment.

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Dow Jones and the Associated Press were used in compiling this report.