Westlake Village, CA–Musical instrument retailer, Guitar Center plans to file for Chapter 11 bankruptcy protection to reduce its debt by nearly $800 million.
The 50-year-old company has entered into a comprehensive Restructuring Support Agreement (RSA) with its key stakeholders, including its equity sponsor, a fund managed by the Private Equity Group of Ares Management Corporation, new equity investors Brigade Capital Management and a fund managed by The Carlyle Group, as well as supermajorities of its noteholder groups. The RSA provides for a comprehensive transaction that will deleverage the company’s balance sheet, enhance financial flexibility and provide additional liquidity to continue to support its vendors, suppliers and employees. The RSA positions the company to return to the growth trajectory it had been on prior to the COVID pandemic. Business operations will continue uninterrupted.
“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,” said Guitar Center Guitar CEO Ron Japinga in a written statement. “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.”
The RSA is intended to allow Guitar Center and its related brands (including Music & Arts, Musician’s Friend, Woodwind Brasswind and AVDG) to continue to operate in the normal course while the transaction is implemented. As a result of the RSA, Guitar Center will continue to meet its financial obligations to vendors, suppliers, and employees, and intends to make payments in full to these parties without interruption in the ordinary course of business.
Guitar Center will continue to provide uninterrupted service to its customers through its existing channels, including its stores, websites, call centers, and social media pages and will continue to receive goods and ship customer orders as usual. All merchandise credits, prepaid lessons, rentals, gift cards, deposits, orders, financing, and warranties will be honored. While Guitar Center is pleased with its overall store footprint, the company has engaged A&G 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 COVID19.
To implement the financial restructuring plan contemplated by the RSA, Guitar Center expects to file voluntary petitions for reorganization pursuant to Chapter 11 in the United States Bankruptcy Court. Currently, supermajorities of the company’s noteholder groups have signed up to the RSA and committed to vote in favor of the plan, above the required support thresholds in the respective agreements to approve the plan. Guitar Center expects the process to be completed before the end of 2020.
Guitar Center has nearly 300 stores across the U.S. The company’s sister brands include Music and Arts, which operates more than 200 stores specializing in band and orchestral instruments for sale and rental, serving teachers, band directors, college professors and students, and Musician’s Friend, a leading direct marketer of musical instruments in the United States.