As expected, Guitar Center, the largest musical-instrument retailer in the U.S. and a mecca for musicians, filed for bankruptcy protection late Saturday night, according to the New York Times. The company, which missed a $45 million bond-interest payment last month, has around $1.3 billion in debt and has been deeply impacted by the coronavirus pandemic.
The company entered Chapter 11 restructuring proceedings in the U.S. Bankruptcy Court of the Eastern District of Virginia, and said in an announcement that it will continue to pay its vendors and employees in full. It said it has reached an agreement with creditors on a plan that would reduce its debt by $800 million, and has secured new financing. Those investors include its current owner, private equity firm Ares Management Corporation, along with funds managed by Brigade Capital Management the Carlyle Group.
The company said it expects to emerge from bankruptcy by the end of the year.
“This is an important and positive step in our process to significantly reduce our debt and enhance our ability to reinvest in our business to support long-term growth,” CEO Ron Japinga said in a statement.
While many musical-instrument retailers have seen strong online sales since lockdown began, Guitar Center lacked the e-commerce infrastructure to fully capitalize on those sales and has been outpaced by competitors such as Sweetwater.
In 2014, Ares converted its debt from Guitar Center into equity ownership and became controlling shareholder. The Guitar Center generated about $2.3 billion in sales its most recent fiscal year, according to Moody’s.
Guitar Center, based Westlake Village, California, has around 300 stores across the U.S., along with 200 outlets for sister brands. It cut spending and furloughed employees as the pandemic took hold, and in April reached an agreement with bondholders to sell new notes and make good on debt payments it previously skipped, which avoided a default. The company began reopening its stores on a limited basis in July, and has also seen solid online purchases.