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[Brian Charbobs]

Guitar Center Files for Bankruptcy

The filing by the nation’s largest retailer of musical instruments highlights the growing gap between the strongest and weakest companies in the pandemic.
Guitar Center, the country’s largest retailer of musical instruments, filed for bankruptcy protection late Saturday night.

The company, which was struggling to compete against online rivals even before the pandemic, was hit hard when it was forced to temporarily close most of its stores earlier this year.

It entered Chapter 11 restructuring proceedings in the U.S. Bankruptcy Court of the Eastern District of Virginia. It will continue to pay its vendors and employees in full, it said in a news release.

Guitar Center said it had struck an agreement with its creditors in support of a plan that would reduce its roughly $1.3 billion in debt by $800 million. To help support its bankruptcy, it said it had secured new financing from investors that include a fund managed by its current owner, the private equity firm Ares Management Corporation, as well as funds managed by the hedge fund Brigade Capital Management and the Carlyle Group, also a private equity firm.

[John Roberts {JR}]

Will they keep paying landlords?

I can imagine them scraping off the bricks and mortar component to re-emerge as web sales only.

JR

[Mark Scrivener]

The big question is what does this mean to equipment/instrument manufactures that GC owes money to. While the big names can easily survive writing off some bad debt to Guitar Center, I could see many of the smaller suppliers getting really burned.

[Daniel Levi]

The big question is what does this mean to equipment/instrument manufactures that GC owes money to. While the big names can easily survive writing off some bad debt to Guitar Center, I could see many of the smaller suppliers getting really burned.

I believe that's what happened to DV247/Digital Village here in the U.K., they went in to administration and were immediately acquired by Music Store Germany, it ended up beig a "pre-pack" administration where a buyer is already waiting and generally talks have taken place between the two companies, they just wait until the company has gone into administration and get it for a much better deal, getting a lot of liabilities written off, essentially paying very little for the companies assets.

Again that's why I like Thomann, according to their accounts they have submitted to companies house in the UK (they have a UK subsidiary so they have to), they owe nothing whatsoever to any financial institution and all stock in the warehouse is brought and paid for outright, plus whilst pleasing shareholders is still necessary, there's only one and that's Johann (Hans) Thomann and he's the boss anyway (I'm guessing there's a legal reason why they need to have shares).   

[Jared Bartimus]

Will they keep paying landlords?

I can imagine them scraping off the bricks and mortar component to re-emerge as web sales only.

JR

They could try but I am curious what percentage of their customer base buys from them because they are a brick and mortar store.  I know I never would have bought something from them if it wasn't for being able to drop in and get something "now".

[Scott Bolt]

They could try but I am curious what percentage of their customer base buys from them because they are a brick and mortar store.  I know I never would have bought something from them if it wasn't for being able to drop in and get something "now".

They also had a very good return policy if you got something you didn't like.

You could also go play an expensive PRS or Taylor acoustic to see what they sound like for yourself.  Kinda hard to do that on the web ..... even with a great chrome browser and all its features

[Dave Guilford]

I’ve worked for gc for 14 years on and off. My understanding is that this has nothing to do with shutting down.  It’s a(nother) financial restructuring. It happens every so often - sometimes financial, sometimes operational, sometimes cultural, etc.

This isn’t actually a big deal, as far as I know.  For a long list of reasons- gc stores will stay open.

[John Roberts {JR}]

I’ve worked for gc for 14 years on and off. My understanding is that this has nothing to do with shutting down.  It’s a(nother) financial restructuring. It happens every so often - sometimes financial, sometimes operational, sometimes cultural, etc.

This isn’t actually a big deal, as far as I know.  For a long list of reasons- gc stores will stay open.

It can be a big deal for the equity (stock) holders, but the debt holders do better.

It seem wrong to wash, rinse, and repeat multiple times. If anything bankruptcies are getting easier.

JR

[Mark Scrivener]

I’ve worked for gc for 14 years on and off. My understanding is that this has nothing to do with shutting down.  It’s a(nother) financial restructuring. It happens every so often - sometimes financial, sometimes operational, sometimes cultural, etc.

This isn’t actually a big deal, as far as I know.  For a long list of reasons- gc stores will stay open.

I've seen a few articles on this in the past several weeks. It appears when they were originally purchased it was done with debt. The new owners essentially bought the business on credit and then assigned the debt to GC. They then later sold the business along with the debt....a highly leveraged move where they make money without having to invest any. Now the debt is crushing them. Yes, GC will continue on in one form or another, but the business will be allowed to write off debts - essentially screwing over people they owe money to. The question is who will this be? Will it be bankers and investors? Probably not. Will it be music equipment suppliers that sent them gear on credit? Possibly. Landlords? Maybe. Stay tuned....

[John Roberts {JR}]

I've seen a few articles on this in the past several weeks. It appears when they were originally purchased it was done with debt. The new owners essentially bought the business on credit and then assigned the debt to GC. They then later sold the business along with the debt....a highly leveraged move where they make money without having to invest any. Now the debt is crushing them. Yes, GC will continue on in one form or another, but the business will be allowed to write off debts - essentially screwing over people they owe money to. The question is who will this be? Will it be bankers and investors? Probably not. Will it be music equipment suppliers that sent them gear on credit? Possibly. Landlords? Maybe. Stay tuned....

If the debt was crushing them now with historic low interest rates, the future with any normalization of interest rates higher will not be good. Ironically perhaps they often borrow money to do the bankruptcy work out.

JR

[Jay Marr]

Stores will be fine.  Employees will be fine.
Debt holders will get the short end of the stick.  I imagine this could impact companies like Fender/Gibson.
Very standard financial play.

[John Roberts {JR}]

Stores will be fine.  Employees will be fine.
Debt holders will get the short end of the stick.  I imagine this could impact companies like Fender/Gibson.
Very standard financial play.

Not to quibble but under "standard" bankruptcy owners (like stockholders) are at the bottom of the list, vendors who are owed money generally have to negotiate some fractional payback with the "Debtors in Possession". This creditors committee is dominated by debt holders with secured debt the most likely to be paid. This is not GC's first rodeo and I suspect any debt obligations since the last bankruptcy is secured, so in fact the debt holders most likely get the longer end of the stick.

I haven't had reason to pay close attention to changes in bankruptcy law but I think the new fashion is pre-packaged bankruptcies where they set up bank financing in advance of filing to keep the lights on and executives paid during the bankruptcy process, so they can emerge quickly and hit the ground running. This one is somewhat different due to Covid disruption/restrictions so as I have speculated they may pivot to more online sales.

JR   

PS: Indeed the manufacturers can lose money from store bankruptcies so keep their ears to the ground to avoid large exposure to risky dealers. Back last century when I was still working in the biz, I recall that one of the duties of our sales reps was to keep an eye on the financial health of their dealers. By visiting the physical store locations every month or two, so they could get a read of customer traffic and floor stock on display. A large dealer like GC is not as easy to kick the tires, but as a publicly traded company their financial information is published. If they are still public, they have changed ownership more than once, so may no publish 10ks any more if they were taken private in one of the buy outs.   

[ProSoundWeb Community]