Judge Approves Loan From Anonymous Bidder to Napster

A Delaware bankruptcy judge Monday took the unusual step of approving a $200,000 loan from an anonymous suitor of Napster Inc. to keep the company alive until a sale of its assets is completed, probably within a month.

U.S. Bankruptcy Judge Peter Walsh authorized the financing at the request of a court-appointed trustee and a committee of unsecured creditors owed money by the silenced song-swapping service.

The suitor emerged a week ago as negotiations with an earlier anonymous bidder dragged on, according to filings in the Delaware case.

Creditors’ attorney Rick Antonoff said he believes that a final agreement to sell Napster’s assets to the new bidder could be reached in two weeks, when the buyer will be identified. “We hope to close within 30 days,” he said.

Preliminary terms call for the bidder to pay $5 million in cash and an undisclosed amount of other consideration to Napster’s creditors in exchange for some of the Redwood City, Calif.-based company’s assets. The rest of Napster will be sold elsewhere, Antonoff said.

Napster filed for bankruptcy reorganization in June, reeling from unfavorable rulings in a copyright case brought by record labels and music publishers. Bertelsmann had planned to buy Napster’s technology through the Bankruptcy Court, but Walsh blocked that deal last month because Napster didn’t show that its dealings with the German media company were at arm’s length.

Napster was facing Chapter 7 liquidation until the last-minute bidders emerged.