Guitar Center will be filing Chapter 11 in the United States Bankruptcy Court in order to reduce its debt and reorganize its business.
Per a press release via Business Wire, the music instrument retailer “has entered into a comprehensive Restructuring Support Agreement (RSA)…that will deleverage the Company’s balance sheet, enhance financial flexibility and provide additional liquidity to continue to support its vendors, suppliers and employees. The RSA positions the Company to return to the growth trajectory it had been on prior to the COVID pandemic.”
In Layman’s terms, Guitar Center was greatly impacted by the coronavirus pandemic, but this RSA will provide the company the ability to get back on track, which includes reducing the retailer’s debt by nearly $800 million.
The press release made clear, “Guitar Center will continue to provide uninterrupted service to its customers through its existing channels, including its stores, websites, call centers and social media pages and will continue to receive goods and ship customer orders as usual. All merchandise credits, prepaid lessons, rentals, gift cards, deposits, orders, financing and warranties will be honored. ”
In a statement on the announcement, Guitar Center CEO Ron Japinga said, “Today we announced a very important and positive step forward to ensure the long-term financial strength of Guitar Center. This agreement will allow us to significantly reduce our debt and reinvest in our business in order to better serve our customers and deliver on our mission of putting more music in the world.”
Japinga continued, “With ten consecutive quarters of growth prior to the impact from COVID-19, we have been pleased with our resilient financial performance during these challenging times created by the pandemic. As a result of this financial restructuring process, we will be better equipped to execute on and invest in our strategic growth initiatives and we will continue delivering through the strength of our brands, availability of our stores, customer-focused associate relationships, innovative music education programs and our expanding digital solutions.”
News of Guitar Center’s financial situation surfaced last month in a report from The New York Times that stated, “The retailer missed an interest payment of roughly $45 million earlier this month, setting off a 30-day grace period that could end in default.”
Guitar Center joins a growing list of retailers, including J.C. Penney, J. Crew and Neiman Marcus, that have sought bankruptcy protection as a result of the impact of the coronavirus pandemic.