Guitar Center Fulfills Debt Payments, Avoiding Potential Default

(Bloomberg) -- Guitar Center Inc. made good on debt payments it skipped last month, ensuring that the largest U.S. retailer of music instruments and equipment will stave off a default.

The retail chain made late interest payments on its unsecured bonds due 2022 and first-lien bonds due 2021, according to people with knowledge of the matter, who asked not to be identified. By making the payments to holders, Guitar Center is no longer operating under the 30-day grace period that was set to expire May 15.

A representative for Guitar Center, which is based in Westlake Village, declined to comment.

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

Stores Shut

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 last year by Moody’s Investors Service. The coronavirus pandemic has cost more than 30 million Americans their jobs, and many who are still employed have seen their pay cut substantially.

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

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

©2020 Bloomberg L.P.