(Reuters) – Guitar Center Inc, the largest U.S. retailer of music instruments and equipment, is looking for ways to restructure its $1.3 billion debt burden as music lovers move their shopping online, according to people familiar with the matter.
The move makes Guitar Center the latest example of a brick-and-mortar retailer facing financial distress, as its stores are relegated to showrooms by consumers looking for bargains on the internet and in big box retailers such as Wal-Mart Stores Inc (WMT.N).
In addition to Amazon.com Inc (AMZN.O), musicians can now buy their instruments online from Sweetwater Sound Inc, as well as directly from guitar makers themselves, such as Fender Musical Instruments.
Guitar Center, majority-owned by private equity firm Ares Management LP (ARES.N), has been having conversations with investment banks and law firms about hiring advisers to help address its capital structure, with $615 million in secured debt coming due in 2019, the people said this week.
The sources asked not to be identified because the company’s plans to cut its debt have not been made public. Ares declined to comment.
The musical instrument industry grew 9 percent to $7.1 billion in retail sales over the past five years, but remains well below its 2005 peak of $7.7 billion, according to data from The Music Trades magazine.
The industry’s challenges have been compounded as the newest generation of teens has shifted its focus from guitars to consoles, smartphones and sports. The electric guitar has been virtually absent from the Top 20 music charts in the past five years.
Based in Westlake Village, California, Guitar Center has more than 280 stores across the United States. Its sister brand Music & Arts runs 150 stores focused on band and orchestral equipment for schools and educators.
It has sought to draw shoppers into its stores by offering music lessons, instrument rentals and free workshops.
Guitar Center began in 1959 as a store selling home organs in Hollywood. In the 1980s, the company started its Rockwalk on Sunset Boulevard, a hall of fame that pays homage to musicians including Alanis Morissette, Aerosmith and Van Halen. After a period of explosive growth, it went public in the 1990s.
Guitar Center’s debt is trading at a significant discount to its face value. Its $325 million in unsecured bonds due in 2020 are trading at about 59 cents on the dollar, according to Thomson Reuters data.
The company’s $615 million in secured bonds due in 2019 are trading at about 87 cents on the dollar.
Credit ratings agency Moody’s Investors Service Inc said in April that it did not expect that Guitar Center will generate enough free cash flow in the next 12 to 18 months to materially reduce its debt and improve leverage.
This would not be the first time Guitar Center would undergo a debt restructuring. In 2014, Ares, which was the company’s creditor at the time, swapped its debt in the retailer for a controlling equity stake, cutting the retailer’s debt by about $500 million.
Reporting by Lauren Hirsch and Jessica DiNapoli in New York; editing by Diane Craft