Guitar Center Goes Bankrupt, Idled by Virus and Slower Sales

Guitar Center Inc., the largest U.S. retailer of music instruments and equipment, filed for bankruptcy after the spreading coronavirus 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 to help stop the spread of the Covid-19 outbreak. It has re-opened certain locations while maintaining e-commerce operations.

A restructuring support agreement that Guitar Centerannounced Nov. 13 calls for new financing backed by existing creditors as well as $165 million in new equity investments from its private equity owner,Ares Management Corp., andCarlyle Group andBrigade Capital Management.

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

The coronavirus shutdown has hit nonessential retailers hard, and Guitar Center is vulnerable because purchases of musical instruments arehighly 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 its has liabilities of $1 billion to $10 billion, with a similar range for its assets, according to the filing.

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 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 byBain Capital LP to take itprivate for $2.1 billion.

The case is Guitar Center, 20-34656, U.S. Bankruptcy Court, Eastern District of Virginia.

— With assistance by Rick Green, and Max Zimmerman

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