Moody's lowers Guitar Center

Moody's Investors Service said it revised Guitar Center Inc.'s outlook to stable from negative.

Guitar Center's Caa1 corporate family rating and Caa1-PD probability of default rating were affirmed, along with the company's Caa1 senior secured and Caa3 senior unsecured note ratings.

The outlook revision considers the continuation and sustainability of the modest improvement in the company's consolidated revenue and EBITDA performance that has taken place during the past 12 months, the agency said.

The stable outlook also considers a view that a majority of Guitar Center's ABL facility will remain drawn throughout the year as the company does not typically hold a material amount of cash on the balance sheet, Moody's said.

The agency said the company is not likely to generate enough free cash flow after all of its debt service and capital spending to materially reduce its loan amounts outstanding.

The ratings consider that despite recent and expected further modest improvements in sales and EBITDA, Moody's said it expects Guitar Center will remain highly leveraged with debt-to-EBITDA of 6.1x.

This high leverage, combined with the relatively limited revenue visibility regarding the retail environment for musical instruments, will challenge the company's ability to improve its leverage by October 2020, the agency said.

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