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Guitar Center restructuring, prepares to file for bankruptcy

Posted by on November 17, 2020

 

 

Musical instrument retailer Guitar Center is preparing to file for bankruptcy. It was announced late last week that the company has “entered into a comprehensive Restructuring Support Agreement (the “RSA”)” with its key stakeholders to reduce its debt.

The RSA is designed to bring Guitar Center back to its pre-COVID financial trajectory by restructuring its assets, an agreement that includes up to $165 million in new equity investments coming from a fund managed by private equity firm Ares Management Corporation, new equity investors Brigade Capital Management, a fund managed by The Carlyle Group and supermajorities of its noteholder groups, in an effort to reduce their debut by $800 million. 

“Today we announced a very important and positive step forward to ensure the long-term financial strength of Guitar Center,” said Guitar Center CEO Ron Japinga in a statement on the matter (as reported by Blabbermouth). “This agreement will allow us to significantly reduce our debt and reinvest in our business in order to better serve our customers and deliver on our mission of putting more music in the world. With ten consecutive quarters of growth prior to the impact from COVID-19, we have been pleased with our resilient financial performance during these challenging times created by the pandemic. As a result of this financial restructuring process, we will be better equipped to execute on and invest in our strategic growth initiatives and we will continue delivering through the strength of our brands, availability of our stores, customer-focused associate relationships, innovative music education programs and our expanding digital solutions.”

The company has also “engaged A&G to explore opportunities to optimize its real estate portfolio and other agreements to focus on investments that best position the company to return to its growth trajectory prior to COVID-19.”

It is expected that the company will voluntarily file petitions to reorganize following Chapter 11 in the U.S. bankruptcy court to execute the plan. They expect that the “process will be completed before the end of 2020.”

News of the restructuring comes nearly a month after the New York Times revealed that Guitar Center had missed a nearly $45 million interest payment on a loan. It was the second time the company had missed a payment within the year, leading many to believe the company would ultimately file for bankruptcy. 

Up until February, the company had seen 10 consecutive quarters of sales growth. In the last fiscal year, they generated $2.3 billion in sales. They currently have about $1.3 billion in debt.

The good news is that Guitar Center will not have to close any stores during the restructuring. With the RSA, the company will continue to operate as normal and pay all employees, vendors and suppliers as usual. 

With nearly 300 retail locations nationwide, Guitar Center has been one of the country’s leading instrument sellers since 1959. Over the years, the company has grown to include a myriad of services other than sales, including lessons, GC Repairs, GC Rentals and more. Its sister companies orchestral and band instrument retailer Music & Arts (which boast more than 200 locations) and direct marketer Musician’s Friend.

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