Guitar maker Gibson Brands Inc. filed for bankruptcy protection Tuesday after struggling with debt it took on to finance acquisitions of home-entertainment and audio-equipment makers years ago.
The Nashville-based company, which filed for chapter 11 in U.S. Bankruptcy Court in Delaware, said it will be "re-focusing the company on the manufacturing of world-class, musical instruments and professional audio products and the continued development of the company's portfolio of iconic, globally recognized brands, including Gibson and Epiphone, by reorganizing around its core businesses." The company has reached a "restructuring support agreement" with holders of more than 69.0% in principal amount of its 8.875% senior secured notes due 2018, and its principal shareholders, that clears the pathway for the continued financing and operations of the musical instruments business as well as a change of control in favor of those noteholders.
To implement the agreement, the company and its U.S. subsidiaries today filed pre-negotiated reorganization cases under Chapter 11 of the U.S. bankruptcy code. The filings will allow the company's musical instruments and professional audio businesses to continue to design, build, sell, and manufacture legendary Gibson and Epiphone guitars, as well as KRK and Cerwin Vega studio monitors and loud speakers, without interruption. The restructuring support agreement provides funding for the musical instrument and professional audio businesses, supports the company's key vendors, shippers and suppliers, and provides for the restructuring of the company's balance sheet. Gibson has vowed to "emerge from Chapter 11 with working capital financing, materially less debt, and a leaner and stronger musical instruments-focused platform that will allow the company and all of its employees, vendors, customers and other critical stakeholders to succeed." Henry Juszkiewicz, chairman and chief executive officer of Gibson Brands, and David Berryman, Gibson's president, will each continue with the company upon emergence from Chapter 11 to facilitate a smooth transition during this change of control transaction and to support the company in realizing future value from its core business.
The company's Gibson Innovations business, which is largely outside of the U.S. and independent of the musical instruments business, will be wound down. The wind-down of the company's GI Business is not expected to impact the company's reorganization around its core musical instruments/pro audio business.
"Over the past 12 months, we have made substantial strides through an operational restructuring," said Juszkiewicz. "We have sold non-core brands, increased earnings, and reduced working capital demands. The decision to re-focus on our core business, musical instruments, combined with the significant support from our noteholders, we believe will assure the company's long-term stability and financial health.
"Importantly, this process will be virtually invisible to customers, all of whom can continue to rely on Gibson to provide unparalleled products and customer service."
In conjunction with the restructuring, the company received commitments for $135 million of debtor-in-possession financing from its existing noteholders. This financing, combined with cash generated from its operations, will provide the company with the liquidity necessary to maintain its operations in the ordinary course during its reorganization proceedings.
The company filed a series of motions that, pending court approval, will allow the company to operate its business throughout the process in the ordinary course, and to provide support to critical business-partners including vendors, shippers, and suppliers. The first day motions will allow the company to continue to buy goods, manufacture and distribute its products to its customer base and continue to honor its warranty policies in the ordinary course.
"We are grateful for the continued support from our employees, customers, dealers, partners and suppliers as we move through the restructuring process," said Juszkiewicz. "The Gibson name is synonymous with quality and today's actions will allow future generations to experience the unrivaled sound, design and craftsmanship that our employees put into each Gibson product."
Founded in 1902, Gibson sells more than 170,000 guitars annually in 80 countries.