Gibson Brands Inc., one of the two most iconic guitar companies in music history, is facing bankruptcy after years of challenges, according to a report in the Nashville Post and other sources.
The Post reports that the company, which has annual revenues of more than $1 billion, is less than six months away from $375 million of senior secured notes reaching maturity; another $145 million in bank loans will be due immediately if those notes, issued in 2013, are not refinanced by July 23. The company’s chief financial officer, Bill Lawrence, recently departed after just six month in the role; the company also moved out of its Nashville offices, from which it had operated since moving to the city from Kalamazoo, Michigan in the 1980s.
Gibson issued a statement Thursday, several days after the Post report published, in which it says that it “has met all current obligations to the bondholders, is in the process of arranging a new credit facility to replace the bonds, and fully expects the bonds to be refinanced in the ordinary course of business.” In the statement, longtime owner and CEO Henry Juszkiewicz (pictured above) said, “These bonds expire as all fixed income instruments do at the end of their term” and noted that the company has been working with Jefferies investment bank to manage the refinancing process. “While the musical instrument and pro audio segments have been profitable and growing, they are still below the level of success we saw several years ago.”
The company’s statement also included an indirect quote from Juskiewicz: “He said that the company continues to streamline and focus its Philips brand consumer audio business on those products that have greater growth potential, as well as eliminating product segments that do not perform to our expectations and have little upside in the future. Gibson expects this strategy will lead to the best financial results the company has seen in its history within the next year, and an ability to pay back the company’s debt in whole within several years.” A rep for the company did not immediately respond to Variety’s request for comment.
The Post cites insiders as saying the company faces bleak prospects for an orderly refinancing, and possibly even bleaker ones for Juszkiewicz. Kevin Cassidy, a senior credit officer at Moody’s Investors Service, told the Post that Juszkiewicz could negotiate an exchange of their debt coming due for new notes; give up some of his equity in exchange for debt payments; or go to bankruptcy court. “This year is critical and they are running out of time — rapidly,” Cassidy said. “And if this ends in bankruptcy, he will give up the entire company.”
The company is in the process of selling various real estate holdings, although those are not expected to bring anywhere near the funds required to right the ship.
Insiders say the company, which was founded by Orville Gibson in 1902, has been struggling for several years under the leadership of Juskiewicz, who has been pursuing other revenue streams, including electronic companies it has purchased, as guitar sales have fallen over the past decade.
The company’s struggles may initially come as a surprise to observers who see vintage Gibsons selling for six figures on instrument sites — indeed, a 1960 Gibson Les Paul Standard could be yours today for a cool $595,000 — yet the company sees little material benefit from the sale of second-hand items and its newer models have not been widely successful. Conversely, its main competitor, Fender, has kept itself above water by introducing budget lines in recent years, a move Gibson only recently embraced.
The company has been synonymous with rock and roll since the 1950s with its models — the most popular include the Les Paul, the SG, the Firebird and several semi-acoustic lines — being used by virtually every iconic guitar hero, from Chuck Berry and B.B. King to Jimmy Page and Eric Clapton and Duane Allman to Slash and Johnny Marr to Gary Clarke Jr. Yet as rock music has fallen from mainstream popularity so have the guitar sales that form the bulk of Gibson’s business.
“Some type of restructuring will be necessary,” Cassidy told the Post. “The core business is a very stable business, and a sustainable one. But you have a balance sheet problem and an operational problem.”