Guitar Heart, the nation’s largest retailer of musical devices, filed for chapter safety late Saturday evening.
The corporate, which was struggling to compete towards on-line rivals even earlier than the pandemic, was hit laborious when it was compelled to quickly shut most of its shops earlier this yr.
It entered Chapter 11 restructuring proceedings within the U.S. Chapter Court docket of the Japanese District of Virginia. It’ll proceed to pay its distributors and staff in full, it said in a news release.
Guitar Heart mentioned it had struck an settlement with its collectors in help of a plan that would scale back its roughly $1.three billion in debt by $800 million. To assist help its chapter, it mentioned it had secured new financing from traders that embrace a fund managed by its present proprietor, the non-public fairness agency Ares Administration Company, in addition to funds managed by the hedge fund Brigade Capital Administration and the Carlyle Group, additionally a personal fairness agency.
The corporate mentioned it anticipated to emerge from chapter by the tip of the yr.
“This is a vital and optimistic step in our course of to considerably cut back our debt and improve our skill to reinvest in our enterprise to help long-term progress,” Guitar Heart’s chief government, Ron Japinga, mentioned in a press release.
Guitar Heart’s chapter is the newest instance of how the coronavirus pandemic has divided American retail into two teams, with a growing gap between the strongest and weakest companies. Though many individuals turned to hobbies like taking part in music whereas homebound, the beneficiaries of that surge in demand have primarily been companies with sturdy e-commerce infrastructure.
Even earlier than the pandemic, Guitar Heart’s enterprise was threatened by on-line rivals like the web site Sweetwater, and the corporate was heavily indebted on account of a private-equity led buyout years earlier. Nonetheless, it mentioned in a court docket submitting, it had had 10 consecutive quarters of gross sales progress by the tip of February. However, it mentioned, the pandemic “worn out a lot” of that progress. It missed an curiosity fee of roughly $45 million final month, placing it on the trail to a chapter submitting, The New York Instances.
Guitar Heart needed to shut lots of its shops throughout the nation, with 75 percent of its stores shuttered at one point. The retailer later mentioned that on-line gross sales blossomed throughout the pandemic, however what quantity of its enterprise these gross sales made up is unclear.
It mentioned within the court docket submitting that its “important debt burden and upcoming maturities, coupled with the financial upheaval created by the persistence of the Covid-19 pandemic, couldn’t be resolved by short-term measures.”
Guitar Heart’s origins date again to 1959, when its founder, Wayne Mitchell, purchased a house organ retailer, the Organ Heart. The rise of the Beatles a couple of years later helped persuade Mr. Mitchell to start promoting guitars and rename the enterprise Guitar Heart. The following few many years introduced growth and, in 1997, an preliminary public providing of inventory.
The corporate was acquired by Bain Capital, the non-public fairness agency, in 2007 for $1.9 billion. However, like many such offers, the buyout left Guitar Heart closely indebted simply as on-line rivals started to emerge. To scale back the debt load, a few of Guitar Heart’s debt was transformed to fairness, making Ares Administration the bulk shareholder in 2014.
Even so, Guitar Heart continued to hold about $1.three billion in debt as a vestige of the Bain takeover.
In submitting for chapter, Guitar Heart joins a slew of different struggling retailers, together with J. Crew, Neiman Marcus and J.C. Penney, which have been unable to resist the influence of the downturn throughout the pandemic. Some, like Neiman Marcus, have already emerged from chapter safety.