UPDATE: Dec. 23, 2020: Guitar Center has emerged from Chapter 11 bankruptcy after a reorganization deal that added new equity and debt capital, and boosted the retailer's liquidity, according to a press release. Following the transaction, the company has added Brigade Capital Management and The Carlyle Group to its roster of owners.
"We are excited to have gained the financial and operational flexibility we need to reinvest in our business and support our long-term sustainable growth, allowing us to deliver on our mission of putting more music into the world," Guitar Center CEO Ron Japinga said in the release.
- Guitar Center expects to emerge from Chapter 11 bankruptcy by Dec. 31 after recently winning approval in federal bankruptcy court for its reorganization plan, the company said in a press release.
- According to the musical instrument retailer, the plan allows it to shed more than $800 million in debt.
- At the same time, Guitar Center has raised $350 million in new secured notes and expects to have a new asset-based facility worth up to $375 million, as well as $165 million in new equity investments.
Guitar Center has made good on its original goal of a speedy trip through bankruptcy.
When it filed for Chapter 11 in November, the company already had the backing of a large enough group of lenders to support a pre-negotiated reorganization plan to get its approval in a bankruptcy vote. It also had an equity investment lined up from Ares Management, which took over the company in a 2014 restructuring deal, as well as Brigade Capital Management and a Carlyle Group fund.
That support was a signal from major stakeholders that they saw continued value in Guitar Center, even amid a dramatically difficult operating environment in the COVID-19 era.
The retailer was originally founded in 1959 as a single store specializing in organs. The Organ Center started selling guitars and related equipment amid the Beatlemania of the 1960s. Today it is the largest musical instrument retailer in the country.
For years Guitar Center has struggled against its debt load, left from a private equity takeover. During that time, the company let go of knowledgeable staff and shuffled its assortment to include more private label products and fewer of the brands and products prized by musicians, according to Chuck Surack, the CEO of online guitar seller Sweetwater.
"They're good for our industry, even though they're not as good as they used to be," Surack told Retail Dive in a November interview. "Our industry needs them badly. They need to inspire young people to come in and learn how to play an instrument."
COVID-19 brought a new, massive challenge, forcing Guitar Center to temporarily close its stores, cutting off sales along with revenue from music lessons. Even with e-commerce sales on the rise, Guitar Center's total sales for the first half of the year fell by nearly 20% compared to 2019, according to CFO Tim Martin.
That hit was all the more painful given that, before the COVID-19 outbreak, Guitar Center reported 10 straight quarters of comparable sales growth. But Martin said the pandemic "wiped out" much of that progress.
The company missed bond payments in the summer, but avoided bankruptcy at the time through a deal that put off interest payments and preserved cash. Months later, it entered bankruptcy court with a more comprehensive restructuring plan.
Getting some debt relief will be key to Guitar Center's prospects post-bankruptcy. "With our strengthened financial position, we will continue to reinvest and grow our business," CEO Ron Japinga said in the release. "We are nearing the end of a successful holiday season and I am excited about our bright future."
The pandemic prompted many consumers stuck in their homes to buy guitars, for something to do in isolation and as a productive distraction from the year's many stresses. How many of them stay with the instrument and seek out Guitar Center for products and lessons will also be a major factor as the retailer looks beyond bankruptcy and 2020.