Gibson files for bankruptcy

[jasperguitar]

Guitar Center was bankrupt ,, not sure they filed but they were close to going out of business .. Bain Capital ,, the Romney outfit , although Romney may have been out of the business by then ..

The long and short of it ,,, consolidate debt ,,, cut expenses ,,, sell off the bad part of the business ... come out strong and focused

Gibson will come out better if the court goes along with the restructure .

The vendors are the big hang up .. they must accept a fraction of the money owed .. or get nothing

[EZK123]

Originally Posted by Mycroft

This is Chapter 11, Reorganization, not Chapter 13, Liquidation, it the filing is allowed.

Chapter 11 and 13 are both reorganization (11 is business, 13 personal). Chapter 7 is liquidation.

There's also a Chapter 12, but it's not relevant

[stephenT]

Naw, it was the guitar. We're fine on humidity, well regulated w/ a whole house humidifier, turned off when not needed. You may be thinking I had only one guitar at the time to compare string life or lack experience w/ acoustics, neither is the case.

Originally Posted by jjrpilot

Maybe the humidity in your house was off? Not sure I've ever heard about a guitar needing a string change in 2 days...

[jasperguitar]

Guitar Center CFO Discusses the Debt
GC sits down with Music Inc.'s Frank Alkyer to discuss the chain's financial situation
Tim Martin, CFO of Guitar Center, aimed to set the record straight. During the company’s Media Day back in October, Martin sat down with members of the trade press to discuss the company’s financial picture, especially long-term debt that will come due between 2016-2018.
Bain Capital purchased Guitar Center Holdings in 2007 for $2.1 billion, borrowing $1.56 billion in making the purchase. The company currently holds several forms of long-term debt, including $434.9 million in senior unsecured notes for Guitar Center Holdings, $394.9 million in unsecured notes for the Guitar Center subsidiary, $165 million in asset-based revolving debt and a $617.5 million term loan. In June, when Standard & Poor’s cut the company’s credit rating (Moody’s rated Guitar Center as stable during that same time period), a variety of industry watchers began to question the long-term outlook for the industry’s largest retail chain.
But Martin said the company is sound and moving forward. Here, in an edited transcript, are his remarks.
Music Inc.: Down the road, you have some serious debt coming due.
Martin: Not for a while. Actually, we’ve got plenty of years left.
Music Inc.: 2016, 17, 18 …
Martin: ’16, ’17 and ’18. At the end of the day, nobody ever does a leveraged buyout expecting that you’re going to pay that off with operating cash flow.
Our bonds are trading above par. That means it’s an attractive investment. Therefore, I would imagine if we wanted to refinance it, we could get some takers.
It’s kind of important to know, from a finance perspective, how the debt market looks at it. We’ve got 255 Guitar Center stores and 118 Music & Arts stores. All of them are cash-flow positive. Every single store we have in the chain is actually making cash-flow money, which from a retail investor perspective, is a huge positive — from a CFO’s perspective, a huge positive.
You kind of have to break the business into two pieces. You have the operations and the capital structure.
If you look at the operations, the business as an operating entity generated over $200 million last year of EBITA.
You can take a look at the financing aspect of it, but at the end of the day, that’s the owners of the company’s problem. It’s not the operation’s problem. It’s not the vendors’ problem. It’s actually not even the employees’ problem.
Because if there were ever a financial distress event, and I don’t think that’s likely to happen, and we could talk about a million reasons why, the vendors are in the best position possible because the bankruptcy court — and, by the way, banks — want to keep running the business so they can make more money.
If we have more than 370 stores that are generating cash flow, there is no way in a million years that a bank or bankruptcy court is going to shut the business down.
The capital structure and how we deal with the debt scenario may be a different answer. Maybe it will be refinancing. It could be an equity infusion. It could be an IPO. There are a million different answers. We’ve got years to deal with that, and some very patient owners.
Music Inc.: From the capital side of this, there’s a very different planning process than the store side of the business.
Martin: Absolutely. If anybody in our investment portfolio world — banks, Bain, the people who hold the biggest chunk of the debt — ever were concerned that they wouldn’t get their money back, we wouldn’t be opening new stores. We wouldn’t be spending over $60 million a year in capital expenditures. So, they see our financials, they sit in on our board meetings, they talk to us about the investment theory.
If they were worried, they wouldn’t let us do that, and they wouldn’t support it like they do.
Our single largest debt holder wants us to grow the business. It’s excited about the new store concept. Bain is excited about the new store concept and rolling out stores.
Music Inc.: But when someone downgrades your debt, people react.
Martin: But read Moody’s note: No short-term liquidity concerns. There is concern over what happens in 2017 and 2018. At the end of the day, the debt holders don’t have ongoing cash flow necessary to pay off the debt. No LBO does. That doesn’t happen. The capital structure is Bain’s problem — but I addressed that earlier with various scenarios, and we have to deal with it. It’s my concern and the owner’s of the company, but the business is not going away. MI

[jstroop]

Originally Posted by jasperguitar

Guitar Center CFO Discusses the Debt
GC sits down with Music Inc.'s Frank Alkyer to discuss the chain's financial situation
Tim Martin, CFO of Guitar Center, aimed to set the record straight. During the company’s Media Day back in October, Martin sat down with members of the trade press to discuss the company’s financial picture, especially long-term debt that will come due between 2016-2018.
Bain Capital purchased Guitar Center Holdings in 2007 for $2.1 billion, borrowing $1.56 billion in making the purchase. The company currently holds several forms of long-term debt, including $434.9 million in senior unsecured notes for Guitar Center Holdings, $394.9 million in unsecured notes for the Guitar Center subsidiary, $165 million in asset-based revolving debt and a $617.5 million term loan. In June, when Standard & Poor’s cut the company’s credit rating (Moody’s rated Guitar Center as stable during that same time period), a variety of industry watchers began to question the long-term outlook for the industry’s largest retail chain.
But Martin said the company is sound and moving forward. Here, in an edited transcript, are his remarks.
Music Inc.: Down the road, you have some serious debt coming due.
Martin: Not for a while. Actually, we’ve got plenty of years left.
Music Inc.: 2016, 17, 18 …
Martin: ’16, ’17 and ’18. At the end of the day, nobody ever does a leveraged buyout expecting that you’re going to pay that off with operating cash flow.
Our bonds are trading above par. That means it’s an attractive investment. Therefore, I would imagine if we wanted to refinance it, we could get some takers.
It’s kind of important to know, from a finance perspective, how the debt market looks at it. We’ve got 255 Guitar Center stores and 118 Music & Arts stores. All of them are cash-flow positive. Every single store we have in the chain is actually making cash-flow money, which from a retail investor perspective, is a huge positive — from a CFO’s perspective, a huge positive.
You kind of have to break the business into two pieces. You have the operations and the capital structure.
If you look at the operations, the business as an operating entity generated over $200 million last year of EBITA.
You can take a look at the financing aspect of it, but at the end of the day, that’s the owners of the company’s problem. It’s not the operation’s problem. It’s not the vendors’ problem. It’s actually not even the employees’ problem.
Because if there were ever a financial distress event, and I don’t think that’s likely to happen, and we could talk about a million reasons why, the vendors are in the best position possible because the bankruptcy court — and, by the way, banks — want to keep running the business so they can make more money.
If we have more than 370 stores that are generating cash flow, there is no way in a million years that a bank or bankruptcy court is going to shut the business down.
The capital structure and how we deal with the debt scenario may be a different answer. Maybe it will be refinancing. It could be an equity infusion. It could be an IPO. There are a million different answers. We’ve got years to deal with that, and some very patient owners.
Music Inc.: From the capital side of this, there’s a very different planning process than the store side of the business.
Martin: Absolutely. If anybody in our investment portfolio world — banks, Bain, the people who hold the biggest chunk of the debt — ever were concerned that they wouldn’t get their money back, we wouldn’t be opening new stores. We wouldn’t be spending over $60 million a year in capital expenditures. So, they see our financials, they sit in on our board meetings, they talk to us about the investment theory.
If they were worried, they wouldn’t let us do that, and they wouldn’t support it like they do.
Our single largest debt holder wants us to grow the business. It’s excited about the new store concept. Bain is excited about the new store concept and rolling out stores.
Music Inc.: But when someone downgrades your debt, people react.
Martin: But read Moody’s note: No short-term liquidity concerns. There is concern over what happens in 2017 and 2018. At the end of the day, the debt holders don’t have ongoing cash flow necessary to pay off the debt. No LBO does. That doesn’t happen. The capital structure is Bain’s problem — but I addressed that earlier with various scenarios, and we have to deal with it. It’s my concern and the owner’s of the company, but the business is not going away. MI

Do you know when this was published? They are talking about 2018 as though it’s far in the future.

[mcduffnw]

Originally Posted by jasperguitar

Guitar Center was bankrupt ,, not sure they filed but they were close to going out of business .. Bain Capital ,, the Romney outfit , although Romney may have been out of the business by then ..

The long and short of it ,,, consolidate debt ,,, cut expenses ,,, sell off the bad part of the business ... come out strong and focused

Gibson will come out better if the court goes along with the restructure .

The vendors are the big hang up .. they must accept a fraction of the money owed .. or get nothing

In 2014, Bain Capital was forced to sell controlling interest of Guitar Center to Ares Capital Management, another, even larger, Private Equity Company, that was/is the principal debt/bond holder of GC debt. GC/Bain was about to default on a huge interest/bond payment due to investors...Ares primarily...so Ares and Bain worked out a deal whereby Ares took controlling interest in GC in lieu of the interest/bond payment...but...in effect...that still cost Ares Capital about $480,000 in defaulted on/lost money. But they gained control of GC, so they will at least have the first and best shot at re-couping any money if and/or when GC finally goes under.

As of this moment...Guitar Center is in debt over 1 Billion, and is rumored in the business community to be on the verge of filing a Chapter 11 Banko. Gibson filing now will most certainly not help Guitar Center, as Gibson will now be slashing inventory costs, and also more aggresively pursuing monies owed to them...of which...I suspect that GC may owe a fair bit to Gibson...and of course Gibson cutting inventory and future inventory purchases will not help GC's money/debt issues. Gibson was definitey not good news for Guitar Center whatsoever!

duff
Be A Player...Not A Polisher

duff
Be A Player...Not A Polisher

[Mycroft]

Originally Posted by EZK123

Chapter 11 and 13 are both reorganization (11 is business, 13 personal). Chapter 7 is liquidation.

You are correct sir. I plead insufficient caffination.

[Paultergeist]

I am very fond of my early Gibson guitars, and the sentiments that go along with those older instruments, but......

.......Gibsons built in more recent years have -- in my opinion -- fallen in quality so far away from the instruments they used to be, that I no longer really care what happens to Gibson as a company.

[mcduffnw]

Originally Posted by jstroop

Do you know when this was published? They are talking about 2018 as though it’s far in the future.

I think this was somewhere in between 2010 to 2012...and a LOT of what Mr. Martin says here is corporate..."the ship is not sinking, why we've never been better" bull puckey.

duff
Be A Player...Not A Polisher

[jjrpilot]

Originally Posted by Paultergeist

I am very fond of my early Gibson guitars, and the sentiments that go along with those older instruments, but......

.......Gibsons built in more recent years have -- in my opinion -- fallen in quality so far away from the instruments they used to be, that I no longer really care what happens to Gibson as a company.

Their quality went significantly up when the plant was moved to Bozeman from my understanding.

[jpd]

Great Squiggly Wiggly! If the big finance houses and auto industry can do it....so can Gibson

[jpd]

Originally Posted by jjrpilot

Their quality went significantly up when the plant was moved to Bozeman from my understanding.

With Ren at the helm the company thrived in the acoustic division.

[Steadfastly]

Maybe there is enough left in the coffers to buy Rondo.

[greenshoe]

In a previous life, I worked in corporate debt restructuring for a moment.

Things can go haywire during a Ch 11 but from the looks of it, Gibson should survive this.

It's not Ch 7 so that's a promising sign that the debt holders are hoping to keep the company alive (Ch 7 is selling off assets to pay back debt; Ch 11 is a restructuring of the debt itself).

Usually, debtholders are either forced to take a "haircut" (write off a % of the remaining debt outstanding) so the payment terms going forward are easier to handle for the company, or

Debtholders become quasi-shareholders - the debt can be "converted" into shares in the company under certain terms or thresholds.

Given that there's been rumors that debtholders want Henry out, my guess is the latter - they will be converting some if not eventually all of their debt into equity, becoming shareholders, and booting Henry.

Again, the guitar business isn't really the issue, but all the other crap they bought. In fact, their guitar business (both acoustic and electric, including Epiphone) seems to be doing really well for the most part.

[Glennwillow]

I wish Gibson well. Hopefully, they and their creditors will find a way out of this financial mess.

- Glenn