Gibson Brands CEO Henry Juszkiewicz is now responding to looming bankruptcy concerns. His comments weren’t the most reassuring.
Amidst urgent asset sell-offs, sinking sales, slumping demand for guitars, and looming bankruptcy concerns, Gibson Brands Chairman and CEO Henry Juszkiewicz is hoping to calm the waters. But a recently-issued statement on the matter is likely to inflame concerns, not quell them.
+ Friday, February 16th: Gibson Guitar Faces Imminent Bankruptcy After 116 Years In Business
As part of a broader statement sent to Digital Music News, Gibson outlined its intent to finish paying a massive, existing bond debt. The company is also aiming to secure additional loans to keep the company going. Those loans — if secured — will likely be valued in the hundreds of millions of dollars.
Gibson’s debt obligations include a recent, $16.6 million coupon payment on an enormous, $375 million bond note that comes due in July.
A separate, $145 million in bank loans is also hovering, with Gibson apparently scrambling to meet its aggressive debt payoff schedule. Sounds horrifying, especially for a company with ‘just’ $1 billion in annual revenues. But Gibson stressed that it has not defaulted on existing debt obligations.
“Gibson Brands, Inc. today announced that it has met all current obligations to the bondholders, is in the process of arranging a new credit facility to replace the bonds, and fully expects the bonds to be refinanced in the ordinary course of business,” the company noted in its statement.
Juszkiewicz underscored that message, pointing to a ‘business as usual’ situation. “These bonds expire as all fixed income instruments do at the end of their term,” the Chairman explained. Juszkiewicz also noted that the company has retained Jefferies investment bank to manage its sizable debt portfolio.
Meanwhile, ratings firms like Moody’s are downgrading the company, while openly pointing to bankruptcy ahead.
Part of that picture includes sell-offs of prime Nashville buildings, even as the value of those properties increase.
In the statement, Juszkiewicz acknowledged that the company was offloading multiple properties. But the CEO characterized the sales as mere asset diversification. “We have been monetizing assets like stock holdings, real property and business segments that could not achieve the level of success we expected,” the CEO explained.
“By monetizing these assets, we can reduce debt and generate funds to contribute to business segments that are thriving.”
Analysts seem less convinced of the ‘thriving’ descriptor. And broader market challenges remain. In comments over the weekend, guitar buyers pointed to a glut of fantastic used guitars, not to mention half-priced Chinese competitors.
Others debated whether enough demand exists anymore, and the data isn’t encouraging. According to stats shared by the Washington Post, US-based guitar sales have plunged more than 35% over the past decade, thanks to massive competition from DJ equipment, DAW software, and simple laptops.
All the while, competition within the guitar space remains fierce.
Here’s the complete statement from Gibson.
Gibson Brands, Inc. today announced that it has met all current obligations to the bondholders, is in the process of arranging a new credit facility to replace the bonds, and fully expects the bonds to be refinanced in the ordinary course of business.
Gibson Chairman and CEO Henry Juszkiewicz said, “These bonds expire as all fixed income instruments do at the end of their term. He noted that, as previously disclosed, the company has been working with Jefferies investment bank in a process to manage the refinancing process.
“While the musical instrument and pro audio segments have been profitable and growing, they are still below the level of success we saw several years ago,” Mr. Juszkiewicz said.
He said that the company continues to streamline and focus its Philips brand consumer audio business on those products that have greater growth potential, as well as eliminating product segments that do not perform to our expectations and have little upside in the future. Gibson expects this strategy will lead to the best financial results the company has seen in its history within the next year, and an ability to pay back the company’s debt in whole within several years.
“We have been monetizing assets like stock holdings, real property and business segments that could not achieve the level of success we expected.”
Mr. Juszkiewicz said that the company is concluding a thorough strategic and budget planning process to identify those areas where it can maximize its investments, and pare back areas where investments have not been performing to expectation.
“We have been monetizing assets like stock holdings, real property and business segments that could not achieve the level of success we expected. By monetizing these assets, we can reduce debt and generate funds to contribute to business segments that are thriving. It is important to our business to get back to the financial success we had to achieve the best financial terms in the refinancing of our company,” he stated.
He said the company is working hard to improve results to ensure the refinancing is completed with best pricing and terms.
“With the refinancing and the improvement in operating performance from the actions that we are rolling out, we expect the company to be organized for success and growth for years to come” Mr. Juszkiewicz said.