Moody's cuts Guitar Center to B3

Moody's Investors Service said it downgraded the corporate family rating of Guitar Center, Inc. to B3 from Ba2. The corporate family rating was moved to VH Acquisition Co., Inc. from Guitar Center, Inc.

Moody's also rated Guitar Center's proposed $650 million secured term loan at B2 (LGD3, 41%), the $375 million eight-year senior notes at Caa1 (LGD4, 60%), the $375 million eight and a half-year holding company senior notes at Caa2 (LGD6, 90%), and assigned a SGL-3 liquidity rating. Moody's said it does not rate the proposed $375 million secured revolving credit facility.

The actions are prompted by the use of proceeds from new debt to finance a leveraged buyout of the company for about $2.2 billion. This concludes the review for downgrade that began in June.

Driving down the rating are the weak post-transaction credit metrics reflecting high leverage, low fixed charge coverage and limited free cash flow, Moody's said. Also constraining the rating are the company's aggressive financial policy and the substantial seasonality of revenue and cash flow, the agency said.

Partially offsetting these risks are Moody's expectation that the company will generate modest levels of discretionary cash flow and repay debt ahead of schedule, the agency said.

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