Musical instrument retailer Guitar Center has entered a Restructuring Support Agreement (RSA) with its key stakeholders that the company expects will include a voluntary filing for Chapter 11 bankruptcy protection. Supermajorities of the company’s noteholder groups have committed to vote in favor of the RSA plan, which Guitar Center forecasts will be completed before the end of 2020.
While calling itself “pleased with its overall store footprint” of nearly 300 brick-and-mortar locations in a company statement, Guitar Center has engaged an outside firm to “explore opportunities to optimize its real estate portfolio and other agreements,” presumably store leases, as the company seeks to return to its pre-COVID-19 growth trajectory.
The RSA transaction will be supported by up to $165 million in new equity investments from a fund managed by the Ares Management, the Carlyle Group and Brigade Capital Management. Additionally, Guitar Center has negotiated $375 million in Debtor-In-Possession financing and plans to raise $335 million in new senior secured notes.
Guitar Center emphasized that it would continue to provide customers with uninterrupted service during the RSA transaction, receiving goods, and shipping customer orders and honoring merchandise credits, prepaid lessons, rentals, gift cards, deposits, orders, financing and warranties. The business-as-usual plans include related brands such as Music & Arts, Musician’s Friend, Woodwind Brasswind and AVDG.
“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,” said Ron Japinga, CEO of Guitar Center in a statement. “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.”