Filing from the nation’s largest retailer of musical instruments shows the growing gap between the strongest and weakest companies in the pandemic.
Guitar Center, the largest retailer of musical instruments in the country, filed for bankruptcy late Saturday night.
The company, which was struggling with online competitors prior to the pandemic, was hit hard when it was forced to temporarily close most of its stores earlier this year.
It was included in the reorganization procedure under Chapter 11 of the U. S.. . Eastern Virginia Bankruptcy Court. It will continue to pay its suppliers and employees in full, a press release said.
Guitar Center said it had reached an agreement with its creditors to back a plan that would cut its roughly $ 1. 3 billion in debt by $ 800 million. To help the bankruptcy, the company has received new funding from investors, including a fund managed by its current owner, private equity firm Ares Management Corporation, as well as funds run by the hedge fund Brigade Capital Management and the Carlyle Group. also a private equity firm.
« This is an important and positive step in our process to significantly reduce our debt and improve our ability to invest in our business to support long-term growth, » said Ron Japinga, General Manager of the Guitar Center. in a statement.
The Guitar Center bankruptcy is the latest example of how the coronavirus pandemic has divided American retail into two groups, with the gap between the strongest and weakest companies growing. Although many people turned to hobbies like making music at home, the beneficiaries of this surge in demand have primarily been companies with a strong e-commerce infrastructure.
Even before the pandemic, the Guitar Center’s business was threatened by online competitors such as the Sweetwater website, and the company was heavily indebted to a private equity-led buyout years earlier. However, a lawsuit said sales growth had increased for ten consecutive quarters through the end of February. But the pandemic « wiped out » much of that progress. Last month, an interest payment of roughly $ 45 million was missed, paving the way for a bankruptcy filing, The New York Times.
The Guitar Center has had to close many of its stores across the country, with 75 percent of its stores closed at one point. The retailer later said online sales flourished during the pandemic, but what proportion of its business those sales represented is unclear.
The court record stated that the « significant debt burden and imminent due dates associated with the economic upheaval caused by the persistence of the Covid-19 pandemic could not be resolved through short-term measures. ». ”
The origins of the Guitar Center date back to 1959 when its founder Wayne Mitchell bought an organ store, the Organ Center. The rise of the Beatles a few years later helped Mr.. . Mitchell begins selling guitars and renames the Business Guitar Center. The next few decades saw an expansion and 1997 an initial public offering of stocks.
The company was acquired by Bain Capital, the private equity firm, for $ 1 in 2007. 9 billion. But as with many deals like this, Guitar Center was heavily in debt from the buyout when online rivals emerged. To ease the debt burden, some of the Guitar Center’s debt was converted into equity, making Ares Management the majority shareholder in 2014.
Even so, the Guitar Center continued to carry around $ 1. 3 billion debt left over from the Bain acquisition.
In filing for bankruptcy, Guitar Center joins a number of other retailers, including J.. . Crew, Neiman Marcus and J. . C.. . Penney, who could not withstand the effects of the downturn during the pandemic. Some, like Neiman Marcus, have already emerged from bankruptcy protection.
Guitar Center, Bankruptcy, Chapter 11, Title 11, United States Code
World News – CA – Guitar Center Files for Bankruptcy
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