After missing a $45 million bond-interest payment earlier this month, the Guitar Center, the largest musical-instrument retailer in the U.S. and a mecca for musicians, is assessing its future, considering multiple restructuring options, including bankruptcy, according to reports in the New York Times and Bloomberg. Like many retail outlets, the Guitar Center, which has around $1.3 billion in debut, has been deeply impacted by the coronavirus pandemic.
The company is discussing a debt reconstruction with its creditors, Bloomberg reports, citing sources familiar with the situation, which could see certain holders taking control of the company. It is also examining alternatives similar to the refinancing deal it reached in the spring after some of its stores were temporarily shuttered as the pandemic took hold.
If the company elects to file for bankruptcy, a likely restructuring plan would see creditors swapping debt for equity in the reorganized company, the sources said, noting that nothing has been finalized yet.
In 2014, private equity firm Ares Management 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. Reps for Guitar Center did not immediately respond to Variety’s requests for comment; a rep for Ares declined comment.
This month, the Guitar Center missed interest payments on its bonds due in 2022 and 2021 and is operating under a 30-day grace period that expires in mid-November, according to the sources, who added that the forbearance could be extended.
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, one of Bloomberg’s sources said.