Guitar Center Nears Bankruptcy Exit After Court Confirmation

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Guitar Center Inc. is one step closer to exiting bankruptcy after the largest U.S. retailer of music instruments and equipment clinched court confirmation of its Chapter 11 plan.

At a virtual hearing Thursday, U.S. Bankruptcy Judge Kevin Huennekens confirmed Guitar Center’s amended bankruptcy plan. The retailer expects to emerge from the Chapter 11 process as soon as next week, attorneys for the company said. The chain will cut around $800 million of debt in the restructuring, court records show.

Guitar Center filed for bankruptcy in November after the Covid-19 pandemic kept customers at home and consumers cut back on discretionary purchases amid the recession. The chain has around 300 stores across the U.S., and sister brands include Music & Arts, which has more than 200 locations specializing in band and orchestral instruments.

During the hearing, Huennekens called the deal “in the best interest of all creditors” and other parties, and added that the creditors would be paid in full.

The company pre-negotiated a restructuring support agreement which included new financing from existing creditors, plus $165 million in new equity from owner Ares Management Corp., as well as Carlyle Group and Brigade Capital Management. Guitar Center will use proceeds from bonds it sold last week to help fund the plan.

Each class of Guitar Center creditors voted in favor of the bankruptcy plan as of Thursday, lawyers for the retailer said in court. Landlords submitted certain objections over the proposal’s timing, most of which have been resolved or are in the process of being resolved, the attorneys added.

Coronavirus shutdowns hit nonessential retailers hard, and Guitar Center was vulnerable because purchases of musical instruments are highly discretionary, according to Moody’s Investors Service. The pandemic has cost tens of millions of Americans their jobs, and many who are still employed have seen their pay cut substantially.

Chapter 11 bankruptcy gives businesses the ability to cut debt, negotiate with landlords and continue operations. Guitar Center filed court papers to reject certain leases, including one for a corporate office in Irvine, California, by the end of January. A new Guitar Center board will consist of members from the investment funds including Ares, Carlyle and Brigade, filings show.

“I look forward to seeing the debtors flourish, even in this environment,” Huennekens said.

The case is Guitar Center Inc., 20-34656, U.S. Bankruptcy Court, Eastern District of Virginia. To view the docket on Bloomberg Law, click here.

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