Less than one month after rumors of a potential bankruptcy filing began circulating, Guitar Center is officially entering Chapter 11 bankruptcy.
Guitar Center recently announced the “comprehensive” restructuring plan, which follows Moody’s downgrading the Westlake Village-headquartered company’s credit rating earlier this year. “Key stakeholders” have agreed to the reorganization framework, and an equity group from Ares Management (traded as ARES on the NYSE), overseen by new equity investors Brigade Capital and The Carlyle Group (traded as CG), is committing up to $165 million to the process.
Also on the capital front, Guitar Center plans to raise $335 million via a new round of senior secured notes (with UBS serving as “lead placement agent”) and has already negotiated a deal to receive $375 million in financing from “certain of its existing noteholders and ABL lenders [asset-based lenders].” In total, the company will look to reduce its debt by “nearly $800 million.”
Guitar Center then notes that the all-encompassing restructuring initiative should enable it to maintain normal operations, including paying vendors, suppliers, and employees while meeting other financial obligations “without interruption in the ordinary course of business.”
Elaborating upon the “normal course” of operations goal, the 61-year-old music-retailer chain specifies that it intends to continue shipping online orders, updating its website and social media accounts, providing in-store services, and honoring all gift cards and prepaid lessons. Guitar Center expects the Chapter 11 proceedings to conclude “before the end of 2020.”
It appears that the lion’s share of the company’s efficiency-minded changes will center on improving the viability of (or closing) the poorest-performing of its 269 U.S. locations. “Guitar Center is pleased with its overall store footprint,” the release relays, but “has engaged A&G to explore opportunities to optimize its real estate portfolio and other agreements.”
Ron Japinga, who became Guitar Center’s CEO in 2016, struck a relatively positive tone when addressing the less-than-encouraging development. “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,” the former West Marine exec said in part.
“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,” continued Japinga.