Home Uncategorized Guitar Center Files for Chapter 11 Bankruptcy In Wake of Debt Restructure

Guitar Center Files for Chapter 11 Bankruptcy In Wake of Debt Restructure

Guitar Center, the nation’s largest retailer of musical instruments, has filed for Chapter 11 bankruptcy protection, the company announced Saturday.

The bankruptcy filing came just one week after the Guitar Center, which had been struggling to compete with online retailers even before the pandemic, announced it had reached a debt-reduction deal with its key stakeholders.

The approved restructuring support agreement (RSA) intends to reduce Guitar Center’s reported $1.3 billion debt by nearly $800 million, including $375 million in Debtor-In-Possession financing from some existing note holders and lenders. It also intends to raise $335 million in new senior secured notes.

The agreement additionally includes $165 million in new equity investments from a fund managed by the private equity group of Guitar Center’s controlling owner Ares Management Corporation (which acquired a majority stake in the company in 2014), new investor Brigade Capital Management, a fund managed by The Carlyle Group and other lenders.

The company says its business operations will continue uninterrupted during the debt restructuring process and that it will continue to pay its vendors, suppliers and employees; operate its stores, websites, call centers and social media pages; and receive goods and ship orders. It will additionally honor all merchandise credits, prepaid lessons, rentals, gift cards, deposits, orders, financing and warranties.

“This is an important and positive step in our process to significantly reduce our debt and enhance our ability to reinvest in our business to support long-term growth,” said Guitar Center CEO Ron Japinga in a release. “Throughout this process, we will continue to serve our customers and deliver on our mission of putting more music in the world.”

Japinga added that the company expects to emerge from bankruptcy by the end of this year.

Guitar Center currently has 300 stores as well as 200 Music & Arts stores, which sell band and orchestral instruments, in the U.S. A majority of those locations were forced to close temporarily early in the pandemic, only adding to the company’s woes.

Saturday’s bankruptcy filing ironically comes as guitar sales surge in the U.S., driven by consumers wanting to pick up new hobbies during the pandemic shutdown. Guitar maker Fender tells CNBC that the company’s sales will top $700 million this year, a nearly 17% increase from 2019, while competitors including Gibson and Taylor have noted similar surges. Guitar Center itself reports that sales of Fender and other top guitar brands have seen triple-digit growth on its website since the pandemic began, though it’s unclear what percentage of those online sales came from new customers versus existing customers who would ordinarily shop at one of the retailer’s physical locations.

The rise of online competitors such as e-tail giant Sweetwater, along with an overall decline in sales of its namesake product, coincided with Guitar Center’s 2007 leveraged buyout by private equity firm Bain Capital, which left the company with over $1 billion in debt that it has since struggled to pay off.

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