Guitar Center Confirms Reorganization Plan

Guitar Center Inc. has announced a plan to file for Chapter 11 bankruptcy protection in an effort to reorganize and get relief from nearly $800 million of the company’s debt.

Following months, and even years, of rumor, unnamed sources and refinancing maneuvers, Guitar Center released news Friday night that the company has entered into a comprehensive restructuring support agreement with key stakeholders. Those stakeholders, which own the vast majority of Guitar Center’s debt, includeits equity sponsor — a fund managed by Ares Management Corporation — as well as new equity investors Brigade Capital Management and a fund managed by The Carlyle Group. The agreement also includes a super majority of the company’s note-holder groups.

The agreement includes up to $165 million in new equity investments to recapitalize the company as well as providing for $375 million in additional near-term liquidity.

“Today we announced a very important and positive step forward to ensure the long-term financial strength of Guitar Center,” said Ron Japinga, CEO 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 10 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.”

Hoping to complete the transaction by the end of 2020, the proposed reorganization will be supported by up to $165 million in new equity investments from a fund managed by the Private Equity Group of Ares Management Corporation, a fund managed by the Carlyle Group and Brigade Capital Management.

Guitar Center has negotiated to have a total of $375 million in debtor-in-possession financing provided by some of its existing note-holders and other loans backed by Guitar Center assets. The company also plans to raise $335 million in new senior secured notes.

The company said the agreement is intended to let Guitar Center and its related brands, including Music & Arts, Musician’s Friend, Woodwind & Brasswind and AVDG, continue to operate as usual while the transaction is implemented. Guitar Center said it will continue to meet its financial obligations to vendors, suppliers, and employees, and intends to make payments in full to these parties without interruption.

guitarcenter.com