Gibson ‘running out of time — rapidly’

Discussion in 'The Backstage' started by paruwi, Feb 11, 2018.

  1. MikeyTheCat

    MikeyTheCat Senior Member

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    Really? Don't those $800 Epi still use veneers on their tops?
     
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  2. Seven

    Seven Silver Supporter

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    Man I have heard this Gibson is going under for several decades now.
     
  3. Tone deaf

    Tone deaf Senior Member

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    Sorry for the delay.:laugh2:

    Same old same old. The "Expert" in the article is a reporter. Need I say more?

    There is a deal to be done here and it is all about pricing (almost all financial transactions boil down to price, once you get all the other details nailed down).

    I will stand by my past reality-check on the company which is they were able to put together the $175 million asset based lending package back in March 2017. I do not think that they could have got that done if the senior lenders were not 100% confident in the company's ability to refi the debt. Additionally, they have Blackstone hanging around and those guys could write the check out of their own pocket, if they were properly motivated.

    So, the company is looking for a decent chunk of change that is subordinated (i.e. it gets paid back after the senior debt) financing. I would expect that they can place private debt with a fairly high interest rate on it, without too much trouble. The company has (reportedly) about $50 million in cash flow with which it can pay its debt service. I would expect that they end up placing either a debt deal with a high coupon and an equity kicker (a sweetner to get the deal done) or they will issue both debt and equity.

    The company is probably worth at least $500 million or there about (10x cash flow). Henry could sell 40% for $200 million and placing the $175 million of subordinated debt would be a walk in the park. I suspect that the thing that has slowed this process down has been getting Henry to agree to give up a big chunk of equity.

    The very last thing Henry will ever consider is bankruptcy, because he loses all his equity if they go BK.

    As for the CFO leaving, that is never a good thing during a financing. I am sure that he felt like he went through a meat grinder on the March 2017 financing (a big accomplishment). This "Gibson on the brink" meme has been a steady drum beat for a few years, now. He may have gotten fatigued by the constant calamity. Maybe he had a better opportunity.

    In any event, I don't think that a company with $1B in sales and $50 million in cash flow is going bankrupt.
     
  4. TheX

    TheX Voice of Reason

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    The higher end ones have a veneer over an actual maple cap. The lower end models have the veneer over mahogany.
     
  5. Frogfur

    Frogfur Senior Member

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    Fuvk'em let them go under. No tears for over priced guitars.
     
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  6. Dilemma

    Dilemma Loud Pipes Ruin Naps Premium Member

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    This is OK, but where the ‘See spot run’ version?

    I have $10.00. I borrow $10.00 more dollars from Malicon <snort> to buy 50 picks. Malicon is charging 5% interest which I can’t pay back because I borrowed another $10.00 from Frog to buy strings and he’s charging 5% too. Now Malicon’s bank is howling for its interest and so is Frog’s bank. I don’t really wanna tap my original $10.00 because it won’t cover either Mal or Frog’s payment.

    Where’s THAT version?
     
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  7. paruwi

    paruwi Kraut-Rocker Super Mod Premium Member

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    yes, that is one part 'cause they cost only a fraction of the Gibbos...

    BTW some guitars in the $1000-$1500 price-range are using veneers, too
     
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  8. Tone deaf

    Tone deaf Senior Member

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    If Gibson "Went under" they would file for Chapter 11 (reorganization) protection. That means that they continue to do business as usual, but they don't have to pay their prepetition bills (i.e. everything they owe prior to the date of the filing except taxes). They would get some DIP (debtor in possession) financing to make sure things run smoothly during the reorg period. Nobody misses payroll, nobody (immediately) gets laid off and so on and so forth. They'd probably eliminate some headcount as part of the reorg process.

    The company files, the court protects them from existing liabilities. The company can pick and chose which contracts it wants to honor and those it does not. The debtors (primarily the senior debt) get control of the company and have a trustee represent their interests. The equity basically gets wiped out and they have little to no more say in what happens. The company gets restructured to the pleasing of the debtors. The company submits a reorg plan to the court. If the court accepts it, they go about implementing it. The idea being that when the company emerges from BK, it can stand on its own.

    In this case, the senior would probably get paid back 100% of what it is owed. The $375 million of subdebt would get most of the rest as well as paying off the trade payables and other liabilities (related to contracts they want to keep).
     
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  9. Tone deaf

    Tone deaf Senior Member

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    Take that first $10 and call it a hedgefund and get 3x-5x leverage on it and go nuts...until it all runs out.
     
  10. freebyrd 69

    freebyrd 69 Silver Supporter Premium Member

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    @Pennyman . You owe the bank $10,000. You have $2000. You borrow $8000 from Guido down the street to pay back the full 10 to the bank, and promise to have Guido's money to him plus interest in a month. In a month, you only have $1000 to pay back to Guido. Word on the street is you are broke, so now you have nobody to lend you the other 7k you owe Guido. You are in deep shit.
     
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  11. Malikon

    Malikon Henshin! V.I.P. Member

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    I break your legs.

    Wait what?



    amazing how interesting I find this stuff when I few years ago you couldn't have paid me to be interested.

    "When Tone-Deaf talks, I listen." :laugh2:

    I'm still waiting for his classes to start. :D
     
  12. JonCanfield

    JonCanfield Platinum Supporter Premium Member

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    If you're smart enough to know you're stupid, you're not stupid enough
     
  13. paruwi

    paruwi Kraut-Rocker Super Mod Premium Member

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    Gibson Makes Coupon Payment; CFO is Out
    Posted on February 8, 2018 by Ted
    Debt Holders Increasingly Anticipate Bankruptcy Filing

    [​IMG]Gibson Brands announced at the end of last week that it had successfully completed a $16.6 million coupon payment to holders of its $375 million 8.875% senior secured notes due 2018. This news, a seemingly positive development for the company, really only means that they get to march forward towards their mid-year debt maturities – the big event. But, for the moment at least, they are stayin’ alive.

    However, Gibson’s CFO has left the company…


    As long time readers know, Strata-gee has followed the Gibson Brands story fairly closely since 2012, so the announcement last week that the company had completed this large coupon payment definitely caught my attention. Certainly, it was a good thing to make this interest payment to the debt holders, a move that at least buys the company some more time.

    But at the same time, other more troubling news has emerged that Bill Lawrence, Gibson’s Chief Financial Officer, left the company at the end of January. Turnover in Gibson’s CFO position was cited by Moody’s Investors Service as a notable factor they considered when issuing a credit rating downgrade in 2016. Coming at this time, the departure of the CFO can’t be a good sign.

    Vendors Cutting Terms and Shipments
    Distressed debt industry newsletter Reorg Research, in a report on Gibson, shed some light on just how dire the situation has become at the company. In the report, Gibson Continues to Seek Completion of Recapitalization Before July as Secured Noteholders Anticipate In-Court Restructuring, reporter Chelsea Frankel offered an amazingly detailed and sobering assessment of the company’s situation. Citing unnamed sources, the report notes “the company’s liquidity has been affected by near-term events such as tightened terms from certain suppliers leading to cuts in shipments to the company.”

    [​IMG]
    Gibson’s CEO Henry Juszkiewicz

    In an interview with company CEO Henry Juszkiewicz, he told them, “This was a short-term issue, which is being reconciled as we speak.” The report goes on to note that the company had counted on proceeds from the sale of a Nashville property in their projected January cash flow, but that transaction did not happen. It further noted, as we’ve told Strata-gee readers previously, Gibson is embroiled in litigation now with two lawsuits pending.

    Juszkiewicz told them that while the sale of a building in Nashville has been held up, they expect that sale to take place this month. Interestingly, Juszkiewicz added, “In addition, we have made some adjustments that will put us in a much better position than we have been for some months.” He did not clarify what that “adjustment” was.

    Seeking a Half-Billion Dollar Package, But Wants Control


    Reorg Research notes that Gibson’s advisors, Jefferies, Alvarez & Marsal and Goodwin Proctor, are attempting to restructure Gibson’s debt with a new $550 million package – more than half a billion dollars – of secured first lien financing and secured second lien financing. The report notes that “the recapitalization would give a substantial amount of equity to providers of second lien financing, but Juszkiewicz would maintain majority ownership in the company” according to their sources.

    Here’s the kicker, they have further learned “that the company has not informed its creditors of any binding financing commitments for the intended recapitalization since it began to solicit financing in or around early December, but the company and its investment banker Jefferies are continuing to pursue such financing.” Translation, no new players have agreed to join the party.

    If Restructuring Fails, Bankruptcy is Inevitable
    [​IMG]
    Is Gibson’s golden empire about to crumble?

    A source told us that Juszkiewicz’s insistence on maintaining majority ownership is a major stumbling block to potential lenders/investors. If Gibson’s debt restructuring isn’t completed by July, then bankruptcy is inevitable.

    Existing Gibson noteholders have retained financial advisors and “anticipate that the company will be unable to recapitalize its debt by July and will face a bankruptcy filing within the year.” Once that happens, the group would likely end up with more equity in the company through the bankruptcy.

    Creditors Have Retained Japanese Lawyers


    One final interesting note in the Reorg Research report, current Gibson noteholders have retained Japanese legal counsel “to determine whether the notes’ security interests in certain subsidiaries, including TEAC and Onkyo, have been perfected.” It is obvious that any financial holdings of debtor Gibson are valuable assets that could become entangled in a bankruptcy filing, and potentially turned over to the company’s debt holders, depending on the court’s decision. But we found it quite interesting that Gibson’s current noteholders are thinking…and acting…this far ahead.

    While Gibson CEO Juszkiewicz still has time to get the recapitalization done, the window of opportunity is beginning to close. Then, things get much worse…

    Learn more about Gibson at: www.gibson.com.

    https://www.strata-gee.com/gibson-coupon-payment-cfo-out/
     
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  14. Bill Hicklin

    Bill Hicklin Senior Member

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    But note that if that happens- not that I'm saying it will - the equity that gets wiped out means Henry's equity: in other words, HJ no longer owns Gibson and the creditors' committee can put anyone they like in charge (subject to approval by the trustee and the judge).
     
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  15. NewDayHappy

    NewDayHappy Senior Member

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    I want bankruptcy to happen, I want Henry out. Gibson under new ownership can go back to making good guitars again and that highly interests me. Until Henry is gone, it will never get better, it's just a matter of time. Look at some of these $3,000, $5,000, $10,000 guitars for sale on Sweetwater, most of these guitars I wouldn't even give $1,000 for WTF are they thinking? I'm glad I got my 2017 LP and SG, 2018 went to shit and it's all downhill from there.
     
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  16. Chicago John

    Chicago John Senior Member

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    This isn't the end, yet, but when Ch. 11 happens, it will weaken Gibson very much. Gibson should never have become a conglomerate since the mother ship was so full of holes to begin with. It's bleeding money badly at this point. But it is such an iconic brand- who knows, maybe PRS could buy the Gibson portion- QC would go through the roof, and Gibson is still around. We can wildly speculate here, can't we? :thumbs:
     
  17. Rotorhead

    Rotorhead Senior Member

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    Under new ownership it could also get much, much worse. I'm not saying that Gibson is better off under the current team, but new ownership often result in even worse conditions.
     
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  18. Thumpalumpacus

    Thumpalumpacus Senior Member

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    HJ is the Al Davis of guitar companies.
     
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  19. Malikon

    Malikon Henshin! V.I.P. Member

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    Gibson still makes fine guitars. They're just a lot more expensive than people would like.

    They're guitars, it's not rocket science.

    Even the years I didn't like (like 2015),...they weren't bad, I just didn't like the specs on them.

    People say the Norlins suck. I've played a few they seemed fine.

    I've played 70's, 80's, 90's, 2000's, 2010+,,...they all were fine. Some had finish issues (which an expensive guitar shouldn't have) but they still played and sounded fine.
     
    Last edited: Feb 12, 2018
  20. pnuggett

    pnuggett Senior Member

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    Bill was heartbroken when his brother Bill died. Bill was Bill's best friend.
     
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