EbeneInfo – CA – Guitar Center goes bankrupt

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Filing by nation’s largest musical instrument retailer highlights growing gap between strongest and weakest companies in pandemic

Guitar Center, the country’s largest retailer of musical instruments, filed for bankruptcy on Saturday night

The company, which struggled to compete online even before the pandemic, was hit hard when forced to temporarily close most of its stores earlier this year

It has entered Chapter 11 restructuring proceedings in the Eastern District Bankruptcy Court of Virginia It will continue to pay its suppliers and employees in full, it said in a press release

Guitar Center said it reached an agreement with its creditors in support of a plan that would reduce its debt by about $ 1.3 billion out of $ 800 million to help support its bankruptcy, it said it secured new funding from investors, including a fund managed by its current owner, private equity firm Ares Management Corporation, as well as funds managed by hedge fund Brigade Capital Management and the Carlyle Group, also a capital firm -investment

« 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 a statement

The Guitar Center bankruptcy is the latest example of how the coronavirus pandemic has split U.S. retail into two clusters, with a growing gap between the strongest and weakest companies Although many people have turned to hobbies like playing music at home, the beneficiaries of this increase in demand have mainly been companies with a strong e-commerce infrastructure

Even before the pandemic, Guitar Center’s business was threatened by online competitors like the Sweetwater website, and the company was heavily in debt following a private equity buyout a few years ago. years Still, he said in a court file, he had experienced 10 straight quarters of sales growth until the end of February. But, he says, the pandemic « wiped out a lot » of that progress. He missed an interest payment of around $ 45 million last month, putting him on the path to filing for bankruptcy. New York Times

Guitar Center has had to close several of its stores across the country, with 75% of its stores closed at some point The retailer later said online sales flourished during the pandemic, but how much of its activity these sales represented is unclear

He said in the court file that « his heavy debt burden and upcoming maturities, coupled with the economic upheaval created by the persistence of the Covid-19 pandemic, could not be addressed by measures to short term »

The origins of the Guitar Center can be traced back to 1959, when its founder, Wayne Mitchell, bought a home organ store, the Organ Center.The rise of the Beatles a few years later helped persuade Mr. Mitchell to start selling guitars and rename the Business Guitar Center The next few decades brought an expansion and, in 1997, an IPO

The company was acquired by Bain Capital, the private equity firm, in 2007 for $ 1.9 billion But, like many of these deals, the buyout left Guitar Center heavily in debt as online competitors began. to emerge To reduce the debt burden, part of Guitar Center’s debt was converted into equity, making Ares Management the majority shareholder in 2014

Despite everything, Guitar Center continued to carry around $ 1.3 billion in debt as a holdover from the Bain buyout

In filing for bankruptcy, Guitar Center joins a host of other struggling retailers, including J Crew, Neiman Marcus, and JC Penney, who couldn’t resist the impact of the downturn during the pandemic. , like Neiman Marcus, are already out of bankruptcy protection

Guitar Center, Bankruptcy, Chapter 11, Title 11, United States Code

EbeneInfo – CA – Guitar Center Files for Bankruptcy

Source: https://www.nytimes.com/2020/11/22/business/dealbook/guitar-center-files-for-bankruptcy.html

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