Moody’s assigns Guitar Center B3

Moody’s Investors Service said it assigned new ratings for Guitar Center Inc. effective following its emergence from bankruptcy, which is expected this month, including a B3 corporate family rating, a B3-PD probability of default rating and a Caa1 rating on the new $335 million senior secured notes due 2025. The outlook is stable.

“By eliminating almost 60% of its pre-petition debt burden, Guitar Center will emerge from bankruptcy with a sustainable capital structure,” said Raya Sokolyanska, a Moody’s vice president and senior analyst, in a press release. “While the company’s music lessons, instrument rentals and store traffic are weaker due to the pandemic, overall operating performance has held up relatively well due to demand from consumers picking up new instrument hobbies and musicians upgrading their equipment.”

The company plans to use the proceeds and $165 million of new equity, to repay a portion of its pre-petition debt and pay bankruptcy fees and expenses. If the transaction closes before emergence, the proceeds will be deposited in an escrow account, to be released subject to closing conditions, Moody’s said.

The company’s debt capital will also include an unrated $375 million asset-based revolving credit facility. The company filed for Chapter 11 on Nov.21.

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