Guitar Center Will File for Bankruptcy
As the world suspected they probably would, Guitar Center, the largest musical instrument retailer in the United States, has announced its intentions to file for Chapter 11 bankruptcy protection “after negotiating a debt-cutting deal with key investors and lenders,” USA Today reports:
“Guitar Center said Friday it had reached a restructuring deal with its controlling owner, a fund managed by private equity firm Ares Management, which acquired its stake in Guitar Center in 2014. The company said it also got support for its deal from new investors Brigade Capital Management and a fund managed by The Carlyle Group and from various lenders.”
Additionally, the retailer has employed a real estate firm “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.”
Says Guitar Center CEO Ron Japinga of the development:
“Today we announced a very important and positive step forward to ensure the long-term financial strength of Guitar Center. 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.”
Despite a record-shattering year for the musical instruments industry with the quarantined masses driving instrument and gear purchases, Guitar Center has struggled, with most of its income from brick-and-mortar stores all but evaporated.
The company has been distressed for years, with reports on this website of such dating back to at least 2014. Bain Capital purchased the company in 2007 via a leveraged buyout, and Ares Management, its current owners, acquired a majority stake in 2014 by converting some of the debt owed into equity in the company. Before the pandemic hit, Guitar Center had shown signs of turning around on its $1.3 billion total debt owed, posting ten consecutive profitable quarters through February of this year.