Guitar Center has announced the successful completion of financial transactions that greatly improve the company’s financial position. As a result of these transactions, Guitar Center’s total debt has been reduced by approximately $500 million and annual cash interest expense has been reduced by more than $70 million. The improved financial position of the company will enable Guitar Center’s management team to further invest in its people, store base and brands to accelerate growth.
As part of the transactions, affiliates of the private equity group of Ares Management exchanged a portion of their holdings of Guitar Center’s debt into preferred stock and assumed a controlling interest in the company. Affiliates of Bain Capital retained partial ownership of the company, along with representation on the Board of Directors. Concurrently with the partial debt-to-equity exchange, Guitar Center completed a refinancing of its remaining indebtedness with proceeds from new senior secured notes, senior unsecured notes and a new revolving credit facility. Aside from carrying a lower interest burden, the company’s new debt structure provides for substantially more flexibility and improved credit terms over the next five years.
“This new capital structure is the culmination of a lot of hard work over the last year,” remarked Mike Pratt, CEO, Guitar Center. “Further, it marks a significant moment for Guitar Center as we strengthen our company and welcome Ares Management and its retail expertise, alongside that of Bain Capital. We now have the necessary resources to expand our footprint and to invest in our people, stores and product assortment. Guitar Center is well positioned to expand our multi-channel offering nationally and to significantly accelerate growth through new services and a strong focus on improving our customer experience. We believe that 2014 is going to be a landmark year of exciting change for Guitar Center and our valued vendor partners.”
Tim Martin, CFO, Guitar Center, said, “These transactions significantly enhance Guitar Center’s financial position. On a cash flow basis, we expect to save more than $70 million a year in cash interest expense. In addition, the removal of the restrictive term loan covenant and extension of the maturity dates of our facilities provides us with financial flexibility to execute our strategic plan and to grow the business.”