Moody’s lowers Guitar Center

Moody's Investors Service said it downgraded Guitar Center Inc.'s corporate family rating to Caa1 from B3, its probability of default rating to Caa1-PD from B3-PD and its senior secured notes ratings to Caa2 from Caa1. The outlook has changed to negative from stable.

“The downgrade reflects Guitar Center's weak operating performance which has resulted in EBITA/interest of less than 1x, funded debt/EBITDA in excess of 7x and negative free cash flow. The downgrade also reflects Moody's expectation for free cash flow to remain modestly negative over the next 12-18 months as it will take time for the new management team's strategic plan to drive revenue and earnings improvement.

“Further, Guitar Center's $375 million asset-based revolving credit facility (ABL; not rated) goes current in December 2024 and its entire debt capital structure, inclusive of its $550 million of senior secured notes, comes due in January 2026 which leaves limited runway for the company to demonstrate improvement in earnings and credit metrics before the need to address its debt maturities,” the agency said in a press release.

The weaker outlook reflects the forecast for Guitar Center to produce negative free cash flow over the next 12-18 months and the limited time it has to deliver improvement in earnings and credit metrics before its capital structure maturity, Moody’s said.

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