Now, it looks like the music retailer is officially filing for Chapter 11 bankruptcy protection after reaching a debt-reduction deal with stakeholders.
2020 has been a difficult year for the retail industry. Over the past few months, Pier 1 Imports, J. Crew, True Religion and JCPenney are just a few retailers who have either been sold to other companies or filed for bankruptcy in 2020. Now, it looks like Guitar Center is preparing to join that ever-growing list.
Guitar Center may be America’s largest instruments retailer, but that hasn’t stopped its growing financial problems in 2020. Last month, the New York Times reported that Guitar Center is on the verge of filing for bankruptcy after failing to make an interest payment.
Now, Guitar Center has set plans in motion to file for Chapter 11 bankruptcy protection. According to Billboard, the retailer has entered into a restructuring support agreement (RSA) to help reduce its debt.
The new plans, announced on Friday, include $165 million in new equity investment from a fund managed by Ares Management Corporation. The private equity group acquired a majority stake in Guitar Center back in 2014. New investor Brigade Capital Management, The Carlyle Group and other lenders are also managing the new fund.
Through these new plans, the company also intends to reduce its reported $1.3 billion in debt by nearly $800 million. This includes $375 million in Debtor-In-Possession financing from some existing lenders and noteholders.
“This agreement will allow us to significantly reduce our debt,” Guitar Center CEO Ron Japinga said. “And reinvest in our business in order to better serve our customers and deliver on our mission of putting more music in the world… As a result of this financial restructuring process, we will be better equipped to execute on and invest in our strategic growth initiatives. And we will continue delivering through the strength of our brands, availability of our stores, customer-focused associate relationships, innovative music education programs and our expanding digital solutions.”
Guitar Center hopes to complete the RSA by the end of the year so it can continue meeting financial obligations. In the meantime, the company will continue to operate all of its locations, websites, call centers and social media pages. As well, all orders and purchases made will be shipped as usual. Merchandise credits, prepaid lessons, deposits, orders, financing, rentals, gift cards and warranties will also be honored.
Prior to the coronavirus pandemic, the retailer was reportedly doing well. The company reported 10 consecutive quarters of sales growth until the end of February before the pandemic hit. Guitar Center, which has been around since 1959, has 300 stores nationwide. In its most recent fiscal year, the retailer generated about $2.3 billion in sales.
What are your reactions to Guitar Center preparing to file for Chapter 11 bankruptcy protection? Let us know your thoughts in the comments below.