Guitar Center, the country’s largest retailer of musical instruments, filed for bankruptcy protection late Saturday night.
The company, which had been struggling to compete with its online rivals before the pandemic, was hit hard by having to temporarily close most stores earlier this year.
Entered Chapter 11 restructuring proceedings at the US Bankruptcy Court in Eastern Virginia. According to the news release, it will continue to pay vendors and employees in full.
Guitar Center said it had reached an agreement with creditors in support of a plan to cut about $ 1.3 billion in debt by $ 800 million. To support bankruptcy, we will raise new funds from investors, including funds managed by the current owner, Ares Management Corporation, a private equity firm, and hedge funds Brigade Capital Management and Carlyle Group. He said he had secured it. It is also a private equity farm.
According to the company, it is expected to break out of bankruptcy by the end of the year.
“This is in the process of significantly reducing debt and empowering us to reinvest in our business to support long-term growth,” said Ron Japinga, CEO of Guitar Center, in a statement. It’s an important and positive step. “
The Guitar Center bankruptcy is the latest example of a coronavirus pandemic splitting American retail into two groups, widening the gap between the strongest and the weakest. Many turned to hobbies such as playing music on their way home, but the benefits of the surge in demand were primarily companies with a strong e-commerce infrastructure.
Even before the pandemic, Guitar Center’s business was threatened by online rivals like the website Sweetwater, and the company benefited significantly as a result of a private-equity-led acquisition a few years ago. .. Still, in a court filing, he said sales had grown for 10 consecutive quarters by the end of February. But it said the pandemic “wipe out most” of its progress. The New York Times previously reported that it missed about $ 45 million in interest payments last month and went on its way to bankruptcy filing.
Guitar Center had to close many stores across the country, with 75% of the stores temporarily closed. Retailers later said that online sales flourished during the pandemic, but it’s unclear what part of their business they are.
“In combination with the economic turmoil caused by the persistence of the Covid-19 pandemic, its significant debt burden and future maturity cannot be resolved by short-term measures,” he said in a court filing.
The origin of the Guitar Center dates back to 1959, when founder Wayne Mitchell purchased the home organ store Organ Center. With the rise of The Beatles a few years later, Mitchell began selling guitars and renamed his business guitar center. The next few decades brought about expansion, and 1997 brought about an initial public offering.
The company was acquired by private equity firm Bain Capital in 2007 for $ 1.9 billion. But, like many such deals, the acquisition has brought great benefits to Guitar Center, just as online rivals have begun to emerge. To ease the debt burden, some of Guitar Center’s debt was converted into shares, and Ares Management became a majority shareholder in 2014.
Still, Guitar Center continued to hold about $ 1.3 billion in debt as evidence of Bain’s acquisition.
In a bankruptcy filing, Guitar Center joins many other struggling retailers, including J. Crew, Neiman Marcus, and JC Penney, who couldn’t stand the effects of the recession during the pandemic. Some, like Neiman Marcus, are already out of bankruptcy protection.
Guitar Center File for Bankruptcy
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