Moody's rates Gibson Guitar loans Ba3

Moody's Investors Service said it assigned a Ba3 corporate family rating and B1 probability-of-default rating to Gibson Guitar Corp. and Ba3 ratings with loss-given-default assessments of LGD3 (31%) to company's $50 million senior secured revolving credit facility due 2012 and $100 million senior secured term loan B due 2014.

The outlook is stable.

Proceeds from the senior secured credit facilities will be used to refinance existing debt and to fund the acquisition of Dongbei Piano Co. Ltd. and Griffiths Guitars International Ltd.

The agency said Gibson's Ba3 corporate family rating is driven by significant qualitative risks, including modest scale, limited product diversification, the highly discretionary nature of its products, the mature nature of the music products category and potential acquisition risk as the company seeks to expand its portfolio of branded instruments. The rating also reflects aggressive financial policy given the likelihood of Gibson making advances to its non-core operations that will likely limit material debt reduction.

The rating is supported by Gibson's good quantitative profile, portfolio of well-recognized brand names, strong consumer loyalty, material share within its target market, positive organic growth trends, a highly variable cost structure that reduces its exposure to margin compression if volumes weaken and favorable operating margins in the mid-teens, Moody's said.

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