S&P cuts Guitar Center

S&P said it lowered its corporate credit rating on operating subsidiary and borrower Guitar Center Inc. to SD from CC.

At the same time, S&P cut its issue-level rating on the company's 9 5/8% senior unsecured notes due 2020 to D from C. S&P expects to withdraw the issue-level rating upon final confirmation of repayment.

The downgrade follows Guitar Center's announcement that it has completed the exchange offer for the $325 million 9 5/8% senior unsecured notes due April 2020. The company has exchanged the tendered debt for new $318 million (5% cash, 8% PIK) senior unsecured notes due 2022 and new warrants to purchase shares of Guitar Center Holdings' common stock at par value $0.01 per share.

“We view the exchange offer as distressed and tantamount to a selective default because the PIK feature and maturity extension constitutes less than the original promise on the notes,” S&P said in a news release.

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