S&P snips Guitar Center

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

“The downgrade reflects our expectation that FOCF will be negative in 2023 and 2024 amid elevated inventory. Guitar Center has experienced declining revenues and compressing margins during 2023. We expect the company will continue its effort to rebalance its inventory position, with inventory levels remaining high through 2024. Although supply chain constraints have largely subsided since the pandemic, the company's inventory position is weighted too heavily in entry point products, which has constrained FOCF generation,” S&P said in a statement.

The outlook is negative.

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