Guitar Center inks restructuring deal to cut $800m in debt

The retail giant is expected to file for Chapter 11 bankruptcy protection soon.

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Update (15/11): Guitar Center has entered a restructuring deal with key stakeholders to reduce its debt by nearly $800 million, the retailer said in a statement.

The company signed a Restructuring Support Agreement with its equity sponsor, a fund managed by the private equity firm Ares Management LP, a fund managed by Carlyle Group, new investors Brigade Capital Management, plus a majority of its noteholder groups. 

The agreement comprises new equity investments of up to $165 million to recapitalise the company.

Guitar Center is still expected to file for Chapter 11 bankruptcy soon.

Guitar Center could file for bankruptcy this weekend, but stores will remain open as the company restructures.

According to a report from Bloomberg, the retail giant and its private equity owner Ares Management are planning to file a prepackaged Chapter 11 bankruptcy protection as early as this weekend. The company’s creditors have supported the potential filing. In a separate report, The New York Times expects the deal to be finalised “in the next few weeks”.

Chapter 11 will give Guitar Center forbearance on missed interest payments in October and let it keep operating its 300 stores around the US, the reports say. A few investors are also looking to inject more capital into the company to help it restructure, per Bloomberg.

“We are in discussions with our creditors regarding multiple options to strengthen our capital structure and we look forward to a positive resolution,” a Guitar Center spokesman told The New York Times.

Suggestions that the company will soon file for bankruptcy first surfaced on 24 October, when news broke of a missed $45 million interest payment, setting off a 30-day grace period that could end in default.

Earlier this year, in May, Guitar Center was reportedly considering debt restructuring after missing two interest payments. In July, the company managed to exchange $56.4 million in bonds, which saved it from immediate default.

Guitar Center currently has $1.3 billion in debt. Bain Capital acquired the company in 2007 for $2.1 billion, and in 2014 did a debt-for-equity swap with Ares Management, who then took control of Guitar Center.

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