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Guitar Center is preparing for possible bankruptcy



The guitar center has begun preparing for a potential bankruptcy filing that may come as soon as next month, said people with knowledge of the situation. The dealer missed an interest payment of around 45 million dollars earlier this month, which was based on a 30-day installment-free period that could end in default, the people said.

The country's largest retailer of musical instruments has reached out to creditors to discuss a plan that would involve the company going bankrupt this year and coming out of it in early 2021, said the people who asked for anonymity because the talks are confidential. A spokesman for the Guitar Center did not respond to a request for comment.

It is still possible that the Guitar Center can avert bankruptcy, as it did earlier this year when it resolved a skipped interest payment in April with an emergency. This led to a downgrade of the credit rating agency Moody & # 39; s in May, which noted that the transaction did not "fundamentally change" the company's "unsustainable" capital structure. This was the third cut in the company's credit rating this year.

The Guitar Center, whose roots go back to 1959, has nearly 300 stores across the country. It is owned by the private equity firm Ares Management, which bought a majority stake in 2014 by converting some of the debt it owned in the retailer to equity. The retailer generated about $ 2.3 billion in sales last fiscal year, according to Moody & # 39 ;s. It has about $ 1.3 billion in debt. Ares declined to comment.

For years, the company has struggled with the shift to online trading and debt built up from a leveraged buyout from Bain Capital in 2007. It had been a sign of a turnaround – it cut 10 consecutive quarters of sales. growth until the end of February, said one of the sources – before the pandemic hit its business hard, as it has done for much of the store-based retail industry.

If the Guitar Center files for bankruptcy, it will follow the path of other dealers including J. Crew, Neiman Marcus and J.C. Penney, who was unable to withstand the effects of the downturn during the pandemic. Some, like Neiman Marcus, have already come out of bankruptcy protection.


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