Bankruptcy blues
Gibson Brands filed for bankruptcy with a turnaround plan that gives some of the company’s lenders equity ownership.
Gibson Brands filed for bankruptcy with a turnaround plan that gives some of the company’s lenders equity ownership of the iconic American business that’s supplied guitars to B.B. King, Elvis Presley and Pete Townshend.
Support from senior secured noteholders will help Gibson repay bank loans while going through a “change of control” transaction, according to papers filed Tuesday with its Chapter 11 bankruptcy in Delaware. The petition shows the company owes as much as $500 million and that lenders will provide a new loan of up to $135 million to keep Gibson in business.
The change in control will give noteholders equity in a new company, replacing current stockholders such as CEO Henry Juszkiewicz. According to court filings, current noteholders include Silver Point Capital, Melody Capital Partners and funds affiliated with KKR Credit Advisors. The restructuring will also allow the instrument business to “unburden” itself of a consumer-electronics unit that Gibson blamed for its financial woes.
Juszkiewicz, who has found himself at odds with creditors in recent months, will continue with the company upon emergence from bankruptcy “to facilitate a smooth transition,” according to the agreement. Court papers call for a one-year consulting deal and compensation package for Juszkiewicz. A representative for the company didn’t immediately respond to questions about whether Juszkiewicz will remain as CEO or in a separate role.
Gibson, founded in 1894, sells more than 170,000 guitars annually in 80 countries. Its guitars are U.S.-made, with factories in Nashville and Memphis, Tennessee, and Bozeman, Montana. It also sells studio monitors, headphones, turntables and other musical instruments. Units also include the company’s Baldwin Piano business.
Cash drains
Its Gibson Innovations business, acquired in June 2014 from Koninklijke Philips NV, was the source of its financial woes, according to a court statement from Brian J. Fox, a managing director at Alvarez & Marsal who will serve as the company’s chief restructuring officer. Acquired through a leveraged transaction, the business faced significant sales declines due in part to a loss of credit insurance overseas. The unit will be wound down, according to a Gibson news release.
Juszkiewicz bought the audio and home entertainment business from Philips for $135 million as part of a bid to relaunch Gibson Guitars as Gibson Brands Inc., a “music lifestyle” company. He also bought a line of consumer electronics from Japanese company Onkyo Corp. in his bid for diversification. But the purchases drained cash, and earnings plunged. The company ran out of time for a turnaround as a bond maturity and springing term loan loomed in July.