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Guitar Center goes bankrupt, idled by coronavirus and slower sales

Guitar Center Inc., the largest U.S. retailer of instruments and equipment for musicians, filed for bankruptcy after the COVID-19 pandemic kept customers at home and job losses made them less able to afford new gear.

The filing in the Eastern District of Virginia gives the company a break on its debts by letting it stay in business as it seeks to carry out a restructuring plan. A turnaround will be complicated by the fact that the company’s stores were shut in mid-March due to the coronavirus outbreak. It has reopened certain locations while maintaining online operations.

A restructuring support agreement announced Nov. 13 calls for new financing backed by existing creditors, as well as $165 million in new equity investments from Guitar Center’s owner, Ares Management Corp., as well as the Carlyle Group and Brigade Capital Management.

Guitar Center, based in Westlake Village, has about 300 stores across the U.S. Its sister brands include Music & Arts, with more than 200 stores specializing in band and orchestral instruments for sale and rent.

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The coronavirus shutdown has hit nonessential retailers hard, and Guitar Center is vulnerable because purchases of musical instruments are highly discretionary, according to a report by 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.

Guitar Center said it has liabilities of $1 billion to $10 billion, with a similar range for its assets, according to the filing.

California’s economy perked up in October, as employers brought back tens of thousands of furloughed workers. But the state has regained less than half the jobs it lost in the spring’s catastrophic coronavirus downturn.

Department stores and specialty shops were already under pressure before the pandemic because of competition from online behemoths like Amazon and declining foot traffic at shopping centers. Guitar Center has diversified by offering repairs and music lessons, which have continued online through the coronavirus shutdown via videoconferencing services.

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Ares gained control of the company in 2014 through an out-of-court restructuring of Guitar Center’s borrowings. The company’s heavy debt load and financial pressures date to a 2007 deal by Bain Capital LP to take it private for $2.1 billion.


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