Guitar Center, a global musical instrument retailer, entered into a restructuring support agreement with its equity sponsor, a fund managed by the private equity group of Ares Management, new equity investors Brigade Capital Management and a fund managed by The Carlyle Group, as well as supermajorities of its noteholder groups.
The contemplated transaction will be supported by up to $165 million in new equity investments from a fund managed by the private equity group of Ares Management Corporation, a fund managed by the Carlyle Group and Brigade Capital Management.
Guitar Center negotiated to have a total of $375 million in debtor-in-possession financing provided by certain of its existing noteholders and ABL lenders. In connection with the RSA, the company currently intends to raise $335 million in new senior secured notes, with UBS Investment Bank serving as the lead placement agent in connection with this effort.
“Today we announced a very important and positive step forward to ensure the long-term financial strength of Guitar Center. This agreement will allow us to significantly reduce our debt and reinvest in our business in order to better serve our customers and deliver on our mission of putting more music in the world. With 10 consecutive quarters of growth prior to the impact from COVID-19, we have been pleased with our resilient financial performance during these challenging times created by the pandemic. As a result of this financial restructuring process, we will be better equipped to execute on and invest in our strategic growth initiatives and we will continue delivering through the strength of our brands, availability of our stores, customer-focused associate relationships, innovative music education programs and our expanding digital solutions,” Ron Japinga, CEO of Guitar Center, said.
The RSA is intended to allow Guitar Center and its related brands (including Music & Arts, Musician’s Friend, Woodwind Brasswind and AVDG) to continue to operate in the normal course while the transaction is implemented. As a result of the RSA, Guitar Center will continue to meet its financial obligations to vendors, suppliers and employees, and the company intends to make payments in full to these parties without interruption in the ordinary course of business.
To implement the financial restructuring plan contemplated by the RSA, Guitar Center expects to file voluntary petitions for reorganization pursuant to Chapter 11 in the United States Bankruptcy Court. Currently, supermajorities of the company’s noteholder groups have signed up to the RSA and committed to vote in favor of the plan, above the required support thresholds in the respective agreements to approve the plan.
Milbank is serving as legal counsel to Guitar Center and BRG is serving as restructuring advisor. Houlihan Lokey is serving as the company’s financial advisor. Stroock & Stroock & Lavan is serving as legal counsel to an ad hoc group of secured noteholders and Province is serving as financial advisor. Kirkland & Ellis is serving as legal counsel to Ares Management and Debevoise & Plimpton is serving as legal counsel to Brigade Capital Management, with GLC Advisors & Co serving as financial advisor. Paul, Weiss, Rifkind, Wharton & Garrison is serving as legal counsel to The Carlyle Group.
