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Thursday, May 19, 2022

Music Chain Sheds $800 Million Debt

In December, just a month after filing to reorganize under Chapter 11, Guitar Center Inc.

emerged with a balance sheet lighter by about $800 million in debt.The Westlake Village musical equipment retailer has entered agreements to receive up to $165 million in new equity financing from stakeholders Ares Management Corp. in Los Angeles, hedge fund Brigade Capital Management and private equity firm Carlyle Group. The three firms now own 100 percent of the common stock in Guitar Center.The company also raised $375 million by entering a new secured asset-based revolving financing facility funded by Wells Fargo and JPMorgan, and another $350 million – up from the expected $335 million – by selling new senior secured notes. That adds up to about $890 million in operating capital.Chief Executive Ron Japinga said in a statement: “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 operates 297 stores under its own banner and more than 200 Music and Arts stores, which specialize in band and orchestral instruments for sale and rent. It also operates an online marketer of musical instruments called Musician’s Friend.

The company has been saddled with more than $1.3 billion in debt since 2007, when equity firm Bain Capital purchased it and took it private for $63 a share. Then came the Great Recession and the meteoric rise of e-commerce, both of which crunched the company’s sales. Bond and loan payments piled up, and in 2014 Bain handed off control to Ares in an out-of-court debt-for-equity swap.

Guitar Center said it had performed well leading up to the outbreak of the pandemic, but the virus created conditions in the retail sector that it couldn’t survive without rearranging its balance sheet.  The reorganization was impressively speedy. Guitar Center entered Chapter 11 on Nov. 22. Less than a month later, on Dec. 17, a bankruptcy judge in the Eastern District of Virginia approved its reorganization plan. It exited on Dec. 23.

Milbank LLC, the New York law firm which served as Guitar Center’s legal counsel for the restructure, said Guitar Center’s case was “groundbreaking for both its speed and means of implementation.”

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