Gibson ‘running out of time — rapidly’

paruwi

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Gibson ‘running out of time — rapidly’
Company faces big debt deadlines; CFO exits after less than a year

authors Geert De Lombaerde

“Gibson Brands, Inc. today announced that the company made a $16.6 million coupon payment to holders of its $375 million, 8.875% senior secured notes due 2018.”

That simple statement issued a week ago — at all of 26 words, it’s less than a quarter the length of Gibson’s boilerplate company description that accompanied it — suggests a business-as-usual tone of a company taking care of its contractual commitments.

But the situation facing the iconic Nashville-based music instrument maker, which has annual revenues of more than $1 billion, is far from normal: CFO Bill Lawrence recently left the company after less than a year on the job and just six months before $375 million of senior secured notes will mature. On top of that, another $145 million in bank loans will come due immediately if those notes, issued in 2013, are not refinanced by July 23.

Less than six months out from those crucial deadlines, the prospects for an orderly refinancing — Gibson has hired investment bank Jefferies to help with that — look slim, observers say. And the alternative scenarios look likely to sideline longtime owner and CEO Henry Juszkiewicz.

“At the end of the day, someone will take control of this company — be it the debtors or the bondholders,” Debtwire reporter Reshmi Basu told the Post this week. “This has been a long time coming.”

Basu said some bondholders have complained about a lack of clarity from Gibson — a situation that has not improved by the arrival of GSO Capital Partners, a unit of private equity giant Blackstone that about a year ago extended Gibson a lifeline via $130 million in loans. Basu told the Post GSO’s arrival on the scene has unsettled some bondholders, who have organized and hired financial and legal advisors to protect their interests.

Kevin Cassidy, a senior credit officer at Moody’s Investors Service, says Juszkiewicz essentially has just three options: He and his team could negotiate an exchange of their debt coming due for new notes, which may not be feasible at a reasonable price. He also could be persuaded — or forced — to give up some of his equity in exchange for the debt payments. Or he may end up taking one of the most globally recognized brands that calls Nashville home to bankruptcy court.

“This year is critical and they are running out of time — rapidly,” said Cassidy, who last summer downgraded Gibson’s debt rating. “And if this ends in bankruptcy, he will give up the entire company.”

Attempts to reach Gibson executives via a spokesman this week were not successful.

The company recently gave itself a bit of breathing room by selling a former Baldwin Piano warehouse in The Gulch for $6.4 million. It also is trying to sell the nearby Valley Arts building on Church Street, although that deal has landed in court. But those sales — the Valley Arts property will bring in about $11 million — are unlikely to make a big enough dent to stave off a painful overhaul.

Gibson needs to report by next week its final numbers for its fiscal third quarter to stakeholders. One thing bond owners will be watching for is an improvement in the company’s electronics business, which has been built up in the past few years via debt-fueled acquisitions but has seen sales slump of late.

Still, even a solid turnaround on that front won’t be enough for Juszkiewicz to avoid difficult conversations.

“Some type of restructuring will be necessary,” Cassidy said. “The core business is a very stable business, and a sustainable one. But you have a balance sheet problem and an operational problem.”

https://www.nashvillepost.com/business/music-business/article/20992105/gibson-running-out-of-time-rapidly
 

RAG7890

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Thanks for the update Peter. :thumb:

I wonder what Gibson will do once they sell all of their assets off & they still have not paid down the loans (which have high interest rates)?

Cheers, Rudi
 

defcrew

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Is CFO Bill Lawrence related to the pup and guitar designer Bill Lawrence?
 

Sct13

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I "think" it means certain loans are coming due....and by the looks of his reports to investors ....they don't have enough to cover those loans ....he needs to refinance and may not have good enough credit to get the big loans in time......its a borrow and re-borrow to keep the cash flowing....

Someone with more financial background can explain this better me thinks
 

Howard2k

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Loads of new guitars flowing into shops. Gibson has done a good job leveraging the “collector” market I think, but the reality is that they’re in an eroding market which is resistant to change.

People have been posting about the death of Gibson for ages, using arguments and metrics of mixed credibility, but I think it is clear that they’re going to need to be making changes sooner rather than later.
 

Dolebludger

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This may be off topic, or not. This week I was in the check out line at a hardware store and say displayed some fire lighters deigned to look like miniature rifles and fishing rods and reels. The cardboard case they were displayed in said they were "made by Gibson". Is that the same "Gibson" that makes and sells guitars? If so, that company has diversified a bit too far.

But, in any event Gibson guitars, as a company, has limited its retail base so far that I don't see how they can survive.
 

Mark V Guitars

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All Henry needs to do is lower prices to realistic levels. By selling more instruments at a lower price point, they can begin to raise revenue, like McDonalds. You know....over 50 billion served. They aint making anything off a single sandwich, but they sell so many of them.

Maybe.
 

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