Guitar Center files for bankruptcy

Gavel and scales
Gavel and scales

Guitar Center, the largest U.S. retailer of musical instruments, filed for bankruptcy protection over the weekend as the latest retail victim of the coronavirus pandemic.

The company, which was struggling to compete against online rivals even before the pandemic, was hit hard when it was forced to temporarily close most of its nearly 300 stores earlier this year. Guitar Center continues to operate a Chattanooga store at 2200 Hamilton Place Boulevard near Hamilton Place Mall in East Brainerd.

It entered Chapter 11 restructuring proceedings in the U.S. Bankruptcy Court of the Eastern District of Virginia. It will continue to pay its vendors and employees in full, it said in a news release.

Guitar Center said it had struck an agreement with its creditors in support of a plan that would reduce its roughly $1.3 billion in debt by $800 million. To help support its bankruptcy, it said it had secured new financing from investors that include a fund managed by its current owner, the private equity firm Ares Management Corp., as well as funds managed by the hedge fund Brigade Capital Management and the Carlyle Group, also a private equity firm.

The company said it expected to emerge from bankruptcy by the end of the year.

Guitar Center's bankruptcy is the latest example of how the coronavirus pandemic has divided U.S. retail into two groups, with a growing gap between the strongest and weakest companies. Although many people turned to hobbies like playing music while homebound, the beneficiaries of that surge in demand have primarily been businesses with strong e-commerce infrastructure.

Even before the pandemic, Guitar Center's business was threatened by online rivals, and the company was heavily indebted as a result of a private equity-led buyout years earlier. Still, it said in a court filing, it had had 10 consecutive quarters of sales growth through the end of February. But, it said, the pandemic "wiped out much" of that progress.

Guitar Center's origins date to 1959. The next few decades brought expansion and, in 1997, an initial public offering of stock. The company was acquired by Bain Capital, the private equity firm, in 2007 for $1.9 billion. But like many such deals, the buyout left Guitar Center heavily indebted. To reduce the debt load, some of Guitar Center's debt was converted to equity, making Ares Management the majority shareholder in 2014.

Even so, Guitar Center continued to carry about $1.3 billion in debt as a vestige of the Bain takeover.

Upcoming Events