Guitar Center files for Chapter 11 bankruptcy following debt restructuring

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The deal further includes $ 165 million in new equity investments from a fund managed by the private equity group of Guitar Center’s majority owner, Ares Management Corporation (which acquired a controlling stake in the company in 2014). , the new investor Brigade Capital Management, a fund managed by The Carlyle Group and other lenders.The company claims that its business activities will continue uninterrupted during the debt restructuring process and that it will continue to pay its vendors, suppliers and employees; operate its stores, websites, call centers and social media pages; and receive goods and ship orders. It will also honor all merchandise credits, prepaid lessons, rentals, gift cards, deposits, orders, financing and guarantees.

“This is an important and positive step in our process of significantly reducing our debt and strengthening our ability to reinvest in our business to support long-term growth,” said the CEO of Guitar Center Ron Japinga in one version. “Throughout this process, we will continue to serve our customers and fulfill our mission to bring more music to the world.”

Japinga added that the company expects to come out of bankruptcy by the end of this year.

Guitar Center currently has 300 stores as well as 200 music and arts stores, which sell orchestras and orchestral instruments, in the United States.Saturday’s bankruptcy filing ironically comes as guitar sales increase in the United States, driven by consumers wanting to acquire new hobbies during the pandemic halt. Guitar maker Fender told CNBC that the company’s sales will exceed $ 700 million this year, an increase of almost 17% from 2019, while competitors such as Gibson and Taylor have noted similar surges. . Guitar Center itself reports that sales of Fender and other major guitar brands have seen triple-digit growth on its website since the start of the pandemic, although it’s not clear what percentage of those sales online came from new customers versus existing customers who would usually purchase from one of the retailer’s physical locations.

The rise of online competitors such as e-commerce giant Sweetwater, as well as an overall decline in sales of its eponymous product, coincided with the 2007 leveraged buyout of Guitar Center by the capital firm. Bain Capital investment, which left the company with over $ 1 billion in debt. he has since struggled to pay.

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