Guitar Center reportedly looking for a power chord on debt

Dive Brief:

  • Music instrument retailer Guitar Center is trying to restructure $1.3 billion in debt, sources familiar with the matter told Reuters Wednesday.
  • In an effort to ease its debt burden, the private equity-owned Guitar Center has been talking with investment banks and law firms about hiring advisers to address its capital structure, Reuters reports. Representatives for Guitar Center did not respond to requests from Retail Dive for comment. 
  • In April, bond rating firm Moody’s downgraded its outlook on Guitar Center’s debt to “negative,” citing a “secular shift in the broader retail industry towards the increasingly important and competitive e-commerce space.” 

Dive Insight:

Guitar Center is falling out of key with customers as the guitar gods of yore die off and the kids listen to — whatever it is they’re listening to these days (apparently not Jimi Hendrix or Eric Clapton).

As The Washington Post pointed out in a recent riff on the industry, electric guitar sales have dropped off by half a million over the past decade as musical tastes, and with them the methods of making music, shift. When the Post reached out to Guitar Center for the story, a spokeswoman told the newspaper an executive would only speak on the condition that he wouldn’t “discuss financials or politics under any circumstances.” The Post turned down the interview opportunity. Other guitar store owners who spoke for the story told the Post their customers were getting older and they were facing online competition.

Moody’s analysts said in April that the Guitar Center — the world’s largest guitar retailer, with 260 stores in the U.S. — wasn’t likely to free up enough cash to meaningfully reduce its debt over the next year and a half or so. S&P wrote earlier this year that Guitar Center executives’ turnaround efforts have been “unsuccessful,” with same-store sales declining at a quickening pace profit growth declining online players cut into its market, according to a report emailed to Retail Dive.

An effort to restructure Guitar Center’s debt could ease the company’s burden, but the guitar retailer and Ares Capital, which took over Guitar Center in 2014, would need its lenders on board with a restructuring plan. As we’ve seen with some companies, including J. Crew, that’s not always a given. (Two lenders recently filed suit over details of J. Crew’s debt restructuring plans.)

A debt restructuring can also hurt a retailer’s debt rating, making it more costly to borrow and further crimping liquidity. Again, this is something J. Crew found recently when S&P downgraded the apparel retailer this week over its debt exchange plan, according to a report emailed to Retail Dive.

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Corporate News

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flickr: mary_thompson

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