Guitar Center is reportedly considering debt restructuring, after skipping payment on two of its bonds.
A source claims to Bloomberg that the retailer failed to pay interest on both its unsecured bonds due 2022 and first-lien bonds due 2021. The source, who asked to remain anonymous, also revealed that Guitar Center’s debt totalled $1.2 billion as of February, with roughly $3 million on its balance sheet. Guitar Center is seeking the help of investment bank Houlihan Lokey Inc., which has served as its financial adviser on past efforts to rework its debt.
The skipped payments were preceded by the retailer’s Bond Credit rating dropping from ‘stable’ to ‘negative’ this February. Ratings agency Moody’s noted that, despite recent financial growth, Guitar Center was carrying too much debt, with vice president and lead analyst for Guitar Center Raya Sokolyanska saying that “leverage remains high and cash flow is limited even after two distressed exchanges.”
At the time, WSJ Bankruptcy also commented on the situation by suggesting that Guitar Center may face yet another debt restructuring before long – and its predictions seem to have materialised.
The move also comes after Guitar Center furloughed a large proportion of its staff last month, as its physical stores remain closed due to COVID-19. This latest restructuring, coupled with the general economic uncertainty caused by the ongoing pandemic, could spell more trouble for the brand. In a letter about the furloughing of 9,000 staff, Guitar Center’s CEO Ron Japinga wrote that “Further difficult decisions will need to be made in the months ahead to maintain the viability of our businesses as well as support our dedicated associates during this challenging period.”
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