S&P lowers Guitar Center

S&P said it lowered its ratings on Guitar Center Inc. and its $550 million of senior secured notes to B- from B. The 3 recovery rating on the senior secured notes remains unchanged, indicating meaningful (50%-70%; rounded estimate: 60%) recovery in default.

The downgrade reflects Guitar Center's deteriorating operating performance and our expectation that operations will continue to be challenged over the next year. Guitar Center has faced significant challenges stemming from inflation, supply chain constraints, and softening demand. Through the second and third quarters of 2022, the company's S&P Global Ratings-adjusted EBITDA margin declined to 9.3% and 8.9% respectively, down from 10.8% for the year ended January 2022,” S&P said in a statement.

The agency said it forecasts a high-single-digit decline in revenue for the year and for the company to report negative free cash flow for the year.

The outlook is negative.

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