Gibson (and other music companies) in huge debt

[robj144]

I don't know if this has talked about here. I also don't know if this should be posted here since it's not specifically about acoustic guitars. But, it is related to Gibson and might be of interest for those that play Gibson acoustics.

A snippet from the article:

"What's lower than a B? The financial rating of Gibson Brands Inc.

The famed guitar maker had its rating lowered to Caa3, nine notches into junk territory, with a negative outlook, as maturity of $520 million in debt approaches.

The privately-held company will need to refinance the debt before July 2018 or it faces a likely default. Moody's Investors Service Inc. said last week that there's "uncertainty" about the company's ability to refinance this debt and that its capital structure is "unsustainable." Gibson didn't respond to request for comment."

https://www.thestreet.com/story/1428...-its-debt.html

[NotValid]

Originally Posted by robj144

I don't know if this has talked about here. I also don't know if this should be posted here since it's not specifically about acoustic guitars. But, it is related to Gibson and might be of interest for those that play Gibson acoustics.

A snippet from the article:

"What's lower than a B? The financial rating of Gibson Brands Inc.

The famed guitar maker had its rating lowered to Caa3, nine notches into junk territory, with a negative outlook, as maturity of $520 million in debt approaches.

The privately-held company will need to refinance the debt before July 2018 or it faces a likely default. Moody's Investors Service Inc. said last week that there's "uncertainty" about the company's ability to refinance this debt and that its capital structure is "unsustainable." Gibson didn't respond to request for comment."

https://www.thestreet.com/story/1428...-its-debt.html

Don't they go through this every few years or so?

[DHart]

They've been spitting out Les Pauls at a rate that the public seems unable to consume, especially at astronomical prices.

Used Les Pauls flood the marketplace in competition. And at that, Gibson sees fit to jack prices for their new production through the roof. Crazy. I do think the balloon is going to pop.

[murrmac123]

[QUOTE=DHart;5479734]
I do think the balloon is going to P!O!P!

Wow, congrats on getting that one past the censors !

[Silly Moustache]

Anyway, Ive just looked on US ebay and there are, indeed, in excess of a hundred Les Pauls, and over fifty J45s for sale.

I can't speak overly about the organisations health but I know that they have a very aggressive contract with British dealers - demanding a joint account of significant value and an agreement to take a certain number of "units" monthly, (of Gibson's choice).

Fewer and fewer Gibsons being sold in my area at least.

[Fogducker]

As we, the guitar buyers, know there are fewer Gibson dealers around. I was at a store about 20 years ago when the dealer broke off our jam to answer a Gibson call. He came back a said he was cutting off the Gibson dealership because they turned so dictatorial. Even the most famous Michigan guitar outlet, (Starts with "E") got into a snit with them 10 years ago or so and now only sells out of the vintage/used area. The acoustics are made in Bozeman, Mt. but the guitars seem to be hit or miss on the sound etc. I hope they can maintain some semblance of independence and make it through this phase!

Fog

[TomB'sox]

Hey guys, give us a chance, we are not reading every post instantaneously...it has been taken down. Please watch the moderator comments as well. We do the best we can. Volunteers with lives outside this forum also BTW.

[axcollector1980]

One thing I notice when looking for a Gibson (I own 4) are all the different Customs, Special Editions, etc. They would save a lot of money by focusing on the flagship models (J200, J185, J160, J45/50, LP Standard, Traditional, Custom Classic, etc.). Working in manufacturing myself, I know how inefficient it is to run different skew#'s and deviate from standard production items. Keep it simple, because a business plan overhaul is obviously needed or these guys are going to be swallowed up by a Big Box if not.

[Silly Moustache]

I understand axecollector's observation, but it seems that Gibsons (and some others) are starting to bring out subtle upgrades (?) changes to established models on an annual basis - much like the automotive and cell phone industries to encourage us (the shrinking buying public) to repurchase the same thing annually.

The fact that this pressurises the dealers to stock, stock, and restock, isn't Gibson's concern.

Sad fact is that we are now (like in the automotive industry) over producing to meet a shrinking market (mainly the baby boomers).

[fazool]

I spent most of my career dealing with, managing through and assisting in manufacturing mergers & acquisitions.

They are running a page out of the wall-street failure playbook:

Owner polishes up earnings with short term improvements.
Consultants calculate a multiple of valuation.
Buyers borrow money.
Buy the company with a loan.
Company isn't worth what it appeared due to short term actions.
Value goes down.
Try to fix company.
Refinance debt.
Flip it out for more debt.
Repeat until it collapses.

This is exactly how to do an M&A wrong, but it pays the finance partners fees and interest and they are the only ones making money.

They will make drastic changes in an effort to pay down some debt to improve their credit rating so they can refinance. The first move will be inventory changes/reductions which is a one-time adjustment (not a real fix). Then they will consolidate stores (like our small town that has two).

The Tech bubble
The Real Estate bubble
The auto industry bubble

This happens over and over. As my friend says "now it's their turn in the barrel."

[robj144]

Originally Posted by DHart

They've been spitting out Les Pauls at a rate that the public seems unable to consume, especially at astronomical prices.

Used Les Pauls flood the marketplace in competition. And at that, Gibson sees fit to jack prices for their new production through the roof. Crazy. I do think the balloon is going to pop.

I don't know if you are aware, but stores have been nearly liquidating Les Pauls now. There are some amazing deals on new LP's now.

[DHart]

Originally Posted by robj144

I don't know if you are aware, but stores have been nearly liquidating Les Pauls now. There are some amazing deals on new LP's now.

Yes, I've seen a ton of sales advertised, in the last month or two, for new/old stock 2015 Les Pauls, especially. Retailers are trying desperately to move them. The world is simply awash in Les Pauls and there are far more sellers for them than buyers. I have a really nice, highly-figured LP Standard in amber translucent finish that I was thinking of selling, but one look at the market tells me to keep it.

[aknow]

Originally Posted by robj144

I don't know if you are aware, but stores have been nearly liquidating Les Pauls now. There are some amazing deals on new LP's now.

Where? You mean $2800 for a LP Standard? What a deal!

[Mr. Jelly]

Ponder this. On ebay there are 414 Gibson acoustics for sale. There are 2,549 Martin acoustics for sale. hmmmmmm

[RP]

Originally Posted by Mr. Jelly

Ponder this. On ebay there are 414 Gibson acoustics for sale. There are 2,549 Martin acoustics for sale. hmmmmmm

I'm not sure what the number of Ebay listings indicates. Do Gibson buyers tend to hang onto their guitars more than Martin buyers due to product satisfaction? Are more new Martins sold than Gibson acoustics in which case one would expect to see more pre-owned sales? As has been noted at various times on AGF, the number of dealers selling Gibson acoustics has decreased. Are Martin guitar sellers more likely to use Ebay (with PayPal/Ebay fees) while Gibson sellers are cheapskates and more likely to use Craigslist? Are Martin sellers more comfortable shipping guitars than Gibson sellers? Do Gibson sellers tend to use other sales platforms, like Reverb, than Martin sellers. Or is it due to the fact that Martin has been producing acoustic guitars about a century longer than Gibson and so there are potentially more available for sale???

As an aside, I kind of wonder if Gibson's production of mandolins, banjos, electric guitars and acoustics under both the Gibson & Epiphone brands has not watered down their identity and spread themselves very thin.

Gibson also owns and makes instruments under brands such as Epiphone, Kramer, Maestro, Steinberger, and Tobias, —along with the ownership of historical brands such as Kalamazoo, Dobro, Slingerland, Valley Arts, and Baldwin (including: Chickering, Hamilton, Wurlitzer).

Although it is well known for its guitars, Gibson's largest business is in fact electronics. Gibson offers consumer audio equipment devices through its subsidiaries Gibson Innovations (Philips brand), Onkyo Corporation(Onkyo and Pioneer brands), TEAC Corporation (Teac and Esoteric brands), Cerwin Vega and Stanton, as well as professional audio equipment from KRK Systems and TEAC Corporation/TASCAM and music software from Cakewalk.

Not sure how the following affects the Ebay data, but I offer them as mere thoughts on the differences between Martin & Gibson. Martin has always been a family owned/operated business while Gibson is a more conventional corporate entity that has been bought and sold. Being accountable to stockholders and a Board of Directors would seem to impose restrictions that a family run business lacks. My gut feeling is that Martin's heritage and corporate structure makes for long-term decision making while Gibson may be the victim of short term solutions to long term issues.