Court approves Guitar Center exit from bankruptcy

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Guitar Center is on the verge of emerging from bankruptcy after the largest US retailer of musical instruments and equipment won court confirmation of its Chapter 11 plan.

In a virtual hearing on Thursday, Judge Kevin Huennekens upheld Guitar Center’s amended bankruptcy plan. The retailer expects to emerge from the Chapter 11 process as early as next week, company attorneys said. The chain will reduce its debt by about $800 million during the restructuring, according to court records.

Guitar Center filed for bankruptcy in November after the pandemic kept customers at home and consumers reduced discretionary purchases amid the recession. The chain has approximately 300 stores across the United States, and sister brands include Music & Arts, which has more than 200 locations specializing in musical and orchestral instruments.

During the hearing, Huennekens called the deal “in the best interest of all creditors” and other parties, and added that creditors would be paid in full.

The company pre-negotiated a restructuring support agreement that included new financing from existing creditors, as well as $165 million in new equity from owner Ares Management, as well as the Carlyle Group and Brigade Capital Management. Guitar Center will use proceeds from the bonds it sold last week to help fund the plan.

Every class of Guitar Center creditors voted in favor of the bankruptcy plan starting Thursday, the retailer’s lawyers said in court. The owners have submitted some objections to the timing of the proposal, most of which have been resolved or are in the process of being resolved, the lawyers added.

The coronavirus closures hit non-essential retailers hard and Guitar Center was vulnerable because musical instrument purchases are highly discretionary, according to Moody’s Investors Service. The pandemic has cost tens of millions of Americans their jobs, and many of those who are still employed have seen their salaries drastically reduced.

Chapter 11 bankruptcy gives businesses the opportunity to reduce debt, negotiate with owners, and continue operating. Guitar Center filed court documents to reject certain leases, including one for a corporate headquarters in Irvine, Calif., in late January. A new Guitar Center board will be made up of members from investment funds including Ares, Carlyle and Brigade, according to filings.

“I look forward to seeing debtors prosper, even in this environment,” Huennekens said.

The case is Guitar Center Inc., 20-34656, US Bankruptcy Court, Eastern District of Virginia.

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