Guitar Center Suffers Major Ratings Downgrade from Moody’s: ‘Leverage Remains High and Cash Flow Is Limited’

One of Guitar Center’s stores in Houston, Texas (photo: Brian Reading)

Moody’s has downgraded the credit rating of Guitar Center, and the Westlake Village-based music retailer is continuing to struggle financially amid the coronavirus (COVID-19) crisis.

First, Moody’s reduced Guitar Center’s corporate family rating (CFR) — or its “ability to honor all of its financial obligations”— to Caa2 from Caa1. The Caa2 rating is part of the lower portion of Moody’s non-investment grade chart.

Next, the financial services company dropped Guitar Center’s probability of default rating (PBR), or Moody’s view of the chances that Guitar Center will default on its debt, from Caa1-PD to Caa2-PD. And lastly, Guitar Center’s “senior secured notes rating” — or its credit rating on loans backed by its assets — fell from Caa1 (LGD4) to Caa2 (LGD3).

Overall, Moody’s changed its outlook of Guitar Center’s financial status and fiscal prospects from stable to negative.

Addressing the rating drop, Moody’s vice president and lead Guitar Center analyst Raya Sokolyanska said: “While Guitar Center has reported modest growth in comparable sales and EBITDA over the past three years, and is a solid operator with a leading position in the niche musical instruments space, leverage remains high and cash flow is limited even after two distressed exchanges.”

At the end of March, Guitar Center CEO Ron Japinga furloughed approximately 9,000 of his company’s 11,000 employees (while committing to covering their benefits and extending their pay through April), in addition to foregoing his 2020 salary. Other executives accepted pay cuts, as Guitar Center’s sales volume and income have decreased dramatically amid coronavirus-prompted nonessential business closures and stay-at-home orders.

Guitar Center has long struggled beneath the weight of substantial debt, which is hovering around $1 billion presently. The per-share price of the brand’s parent company, Ares Management (ARES), has fared better than that of many other business entities, though; at the time of this writing, its value was roughly $34.

Guitar Center has 269 U.S. locations, making it America’s largest music equipment retail brand.

21 Responses

  1. Avatar
    Spongebob

    Well looks like GC better have a very Big sale and I don’t mean 30% off

  2. Avatar
    Anonymous

    The Mayor that made the guitar distribution warehouse close is an absolute idiot. The warehouse is 700,000 sqare feet, GC had a out 100 people working per shift in 3 shifts. That equates to anout 7000 square feet per employee, more than adequate social distancing. There were many of us that were stuck at ho.e and wanted a new guitar or wanted to learn to play music, but some idiot beurocrats decide 7000 sqare feet isn’t enough social distancing damn fools.

    • Avatar
      Angelito

      Amen. Keep preaching the truth to the hysterical herd. The GOVERNMENT destroyed more lives than the virus.

      • Avatar
        Bob

        Those negatively affected financially will recover in time. Those who have died will not.

        • Avatar
          Vail, CO

          Healthy, younger people have virtually 0% chance of dying from this. Overall the best data shows a mortality rate of 0.35% overall. So why sideline 99+% of the entire population who have a greater chance dying while driving to the factory? We really should just isolate the at-risk population instead of destroying our entire economy and created Great Depression II.

          • Avatar
            Leo

            That’s simply not true. You’re no doctor, obviously, and don’t do research very well.

        • Avatar
          Angelito

          Tell that to folks who are heading to bankruptcy court, schmuck. They lost their cars, apartments, and savings for absolutely NO valid reason.

          • Avatar
            Vail, CO

            HIstorians will see this as one of the worst government responses of all time and across all civilizations, long after we’re dead (or killed). If you even want to call it a “response”. First and foremost the time to counteract this was December, January at the latest, if not years earlier with preparations against broader-scale health threats… a capable government would not even have a question of that. Then shutting down your entire economy? Good luck dealing with a Great Depression 3X worse than the 1930s not to mention the risk of destroying an entire nation, now the risk of total societal breakdown and system-wide failure is high. The President had a lot to do with this and is a big part of this story but this goes way, way beyond him. More people will die from economic and societal collapse than COVID-19 which has an extremely low mortality rate.

          • Avatar
            Bob

            Your rationale is a miss. If they were to ignore the virus and go about their normal day-to-day, there is a chance they could die, or infect others to die. At that point, they would have lost more than a car, apartment or savings. It’s a risk, a roll of the dice. You seem to think this virus is no big deal. Tell that to the million people infected and affected, as well as the families of the tens of thousands who are dead. Something about you is very off.

    • Avatar
      Bob

      Clearly, you don’t understand social distancing. You’re probably the kind of person who thinks global warming is only about the planet getting hotter, too.

      • Avatar
        Angelito

        Global warming is based on the same junk science that caused this scamdemic. So, you are correct on that.

      • Avatar
        Angelito

        The data is showing that your beloved social distancing had ZERO effect on reducing this Chinese Flu. Sweden did not require it, or any stupid lockdown, and its infection rate is no different than the US.

        This scamdemic is only the tyrannical acts of government exercising control over people. And, the hysterical herd followed right along.

        • Avatar
          Bob

          Apples and oranges. The US has just 4.25% of the world population, but has over 30% of cases and 27% of deaths, worldwide.

          Michigan alone (for an example) has 39,262 confirmed cases and 3,567 deaths, which would rank it 14th in cases and 12th in deaths, if it were a country.

          Yup, you’re right…nothing to see here.

          Sorry to present you with reality, but clearly, you’re a hysterical buffoon who prefers to spout off nonsensically, than do research and post rational comments.

  3. Avatar
    Woke

    Global warming?
    What melted the glaciers 10k years ago?
    Fender’s factory emissions?
    And you claim science.

    • Avatar
      Bob

      higher levels of atmospheric carbon dioxide is what did it, but that’s science and I wouldn’t want your brain to explode.

  4. Avatar
    Bob

    Facts are not your strength and very tough for you to understand. That’s apparent.

    • Avatar
      Angelito

      Junk science and politics drive your leftist agenda. It is easy to see that.

      • Avatar
        Bob

        Get your vision checked. Nothing leftist or rightist when it comes to facts and reality.