Guitar Center plans to file Chapter 11 to implement restructuring

By Sarah Lizee

Olympia, Wash., Nov. 16 – Guitar Center, Inc. plans to file Chapter 11 bankruptcy soon to implement a comprehensive restructuring support agreement, according to a press release issued Friday.

Guitar Center entered into the RSA with its key stakeholders, including its equity sponsor, a fund managed by the private equity group of Ares Management Corp., new equity investors Brigade Capital Management and a fund managed by the Carlyle Group, as well as supermajorities of its noteholder groups.

The RSA provides for a comprehensive transaction that will deleverage the company’s balance sheet, enhance financial flexibility and provide additional liquidity to continue to support its vendors, suppliers and employees.

The agreement is intended to allow Guitar Center and its related brands, including Music & Arts, Musician’s Friend, Woodwind Brasswind and AVDG, to continue to operate in the normal course while the transaction is implemented.

Guitar Center said it will continue to meet its financial obligations to vendors, suppliers, and employees, and intends to make payments in full to these parties without interruption in the ordinary course of business.

The company said that while it is pleased with its overall store footprint, it is exploring opportunities to optimize its real estate portfolio and other agreements to focus on investments that best position the company to return to its growth trajectory prior to Covid-19.

Currently, supermajorities of the company’s noteholder groups have signed up to the RSA and committed to vote in favor of the plan, above the required support thresholds in the respective agreements.

Guitar Center said it expects the process to be completed before the end of 2020.

The contemplated transaction will be supported by up to $165 million in new equity investments from a fund managed by the private equity group of Ares, a fund managed by the Carlyle Group and Brigade.

Guitar Center has negotiated to have a total of $375 million in debtor-in-possession financing provided by some of its existing noteholders and asset-based lenders.

In connection with the RSA, the company currently intends to raise $335 million in new senior secured notes. UBS Investment Bank will serve as the lead placement agent.

Milbank LLP is serving as legal counsel to the company and BRG is serving as restructuring adviser. Houlihan Lokey is serving as the company’s financial adviser.

Stroock & Stroock & Lavan LLP is serving as legal counsel to an ad hoc group of secured noteholders and Province is serving as financial adviser.

Kirkland & Ellis LLP is serving as legal counsel to Ares Management Corp. Debevoise & Plimpton LLP is serving as legal counsel to Brigade Capital Management and GLC Advisors & Co. is serving as financial adviser. Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as legal counsel to the Carlyle Group.

The musical instrument retailer is based in Westlake Village, Calif.

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