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Rating Action:

Moody's downgrades Gibson's CFR to Caa1; rating outlook is negative

Global Credit Research - 03 Mar 2016

New York, March 03, 2016 -- Moody's Investors Services ("Moody's") downgraded Gibson Brands ("Gibson") CFR to Caa1 from B3 due to the company's weak operating results pushing credit metrics below Moody's expectations. This action concludes a review for downgrade that was initiated on December 22, 2015. The rating outlook is negative.

"The downgrade reflects the weak performance and the resulting very high leverage and also the additional financial obligations Gibson incurred from its agreement with a consumer electronics supplier to settle overdue payables and the stress it puts on company's liquidity profile," said Kevin Cassidy, Senior Credit Officer at Moody's Investors Service.

Ratings downgraded:

Corporate Family Rating to Caa1 from B3;

Probability of Default Rating to Caa1-PD from B3-PD;

$375 million senior secured 2nd lien notes due 2018, to Caa2 (LGD 4) from Caa1 (LGD 4)

RATING RATIONALE

Gibson's Caa1 Corporate Family Rating considers its weak liquidity profile, soft credit metrics and the highly discretionary nature of its musical instrument and consumer electronics product lines. Demand for these products was dampened by the deterioration in discretionary consumer spending during the last few years and was exasperated by the poor consumer reception of its 2015 guitar models. The ratings also reflect the company's high leverage at around 8.5 times and the risks associated with the consumer electronics business. Another key concern is that there continues to be high turnover in the company's senior financial management level. Gibson's ratings are supported by the company's strong brand recognition in musical instruments and market share for guitar products, and diversified product line within guitars and related music areas. The ratings are also supported by its geographic diversification.

The negative outlook reflects the risk that Gibson may not be able to meet its near-term financial commitments.

The ratings could be lowered if the company does not materially improve its free cash flow generation to address its $36 million financial obligations to a consumer electronics supplier by December 2016 or its subsequent $62 million obligation by December 2017.

While unlikely in the near term given the negative outlook, over the longer term an upgrade could be considered if Gibson improves and sustains its operating performance. Key credit metrics driving an upgrade would be maintaining interest coverage of more than 2 time and reducing debt/EBITDA to around 6 times, while improving its liquidity profile.

The principal methodology used in this rating was the Consumer Durables Industry published in September 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Nashville, Tennessee, Gibson Brands Inc. designs, manufactures, markets, and globally distributes premium musical instruments, consumer and professional audio and video products, information products, and related accessories. The company's product offerings are marketed under a portfolio of brands including Gibson, Philips, Epiphone, Kramer, Baldwin, Onkyo, KRK, and Stanton. Revenues approximated $1.7 billion for the twelve months ended December 31, 2015.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Kevin Cassidy
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades Gibson's CFR to Caa1; rating outlook is negative
No Related Data.
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