Moody's may downgrade Guitar Center

Moody's Investors Service said it placed Guitar Center Inc.'s Ba2 corporate family rating on review for possible downgrade following the company's announcement that it signed a definitive agreement to be acquired by affiliates of Bain Capital Partners, LLC. The transaction is valued at $2.1 billion, including the assumption of $200 million of debt, and Guitar Center shareholders will receive $63 per share in cash.

The agency said the review is prompted by the high likelihood that the transaction with be predominantly financed with debt and will result in a significant increase in the company's leverage and a corresponding weakening in credit metrics at a time when the musical instruments industry has recently faced challenges. It is likely, given the transaction value, that the company's corporate family rating could fall well into the B rating category, Moody's warned.

The review will focus on Guitar Center's capital structure and financial profile pro forma for the transaction, its ability to manage its expected higher debt burden, the current environment of the musical instruments industry after a challenging fourth quarter in 2006 and the company's operating performance, the agency said.

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