Moody's might upgrade Guitar Center, rates notes B3, Caa2

Moody's Investors Service said it assigned a B3 (LGD3, 47%) rating to Guitar Center Inc.'s proposed $615 million senior secured first-lien notes due 2019, assigned a Caa2 (LGD5, 86%) rating to its proposed $325 million senior unsecured notes due 2020, affirmed its senior secured term loan B at Caa1 (LGD3, 36%) and affirmed Guitar Center Holdings, Inc.'s speculative grade liquidity rating at SGL -3.

Guitar Center Holdings' Caa2 corporate family rating and Caa2-PD probability of default rating were placed on review for upgrade.

The review for upgrade acknowledges that the pending conversion of $435 million of senior holding company notes and $100 million of senior operating company notes into preferred stock significantly reduces Guitar Center's leverage, the agency said. Moody's estimates that pro forma for the conversion and proposed refinancing of the remaining debt, Guitar Center's ratio of debt to EBITDA will be reduced to 7.5 times from 10.5 times as of Dec. 31.

So long as the transaction closes upon terms and pricing substantially similar to what is currently anticipated, the corporate family rating will likely be upgraded to B3, the agency said.

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