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17 Aug 2017
New York, August 17, 2017 --
Moody's Investors Service downgraded Gibson Brands, Inc.'s
("Gibson") Corporate Family Rating to Caa3 from Caa2,
its Probability of Default Rating to Caa3-PD from Caa2-PD,
and senior secured notes to Ca from Caa3. The rating action is
due to Moody's concern with Gibson's weak operating performance,
liquidity pressure from approaching maturities, and the view that
the company's capital structure is unsustainable. The rating
outlook is negative.
"We feel that Gibson's capital structure is unsustainable
due to the uncertainty over its ability to refinance debt that comes due
in July 2018 and August 2018 given its very high leverage and weak operating
performance," said Kevin Cassidy, Senior Credit Officer
at Moody's Investors Service. Debt/EBITDA is approaching
10 times. "Despite our expectation of debt reduction over
the next year with the expected proceeds from asset sales, we think
debt/EBITDA will remain high at around 8 times," noted Cassidy.
Moody's expects Gibson to significantly decrease its cost structure
over the remainder of the year. This should eventually lead to
sustained margin improvement, although there is uncertainty about
the timing of when the benefits are realized. "We expect
EBITDA to remain essentially flat this year as we think margin enhancements
will not be enough to offset revenue declines," said Cassidy.
Moody's expects a significant decrease in revenue this year as the
company reduces the number of SKUs in the Audio business and deals with
the lingering effects of supply shortage issues that began in the first
quarter of the fiscal year ended March 2018, new government regulations
for certain wood products, and long-term secular pressure
on guitar volumes in the Musical Instrument business.
Moody's downgraded the following ratings of Gibson Brands,
Inc.:
Corporate Family Rating to Caa3 from Caa2;
Probability of Default Rating to Caa3-PD from Caa2-PD;
$375 million senior secured notes due 2018, to Ca (LGD 4)
from Caa3 (LGD 4)
Outlook is Negative
RATING RATIONALE
Gibson's Caa3 Corporate Family Rating reflects the company's untenable
capital structure given its high leverage, weak liquidity profile
including negative free cash flow and significant refinancing risk,
and the highly discretionary nature of its musical instrument and consumer
electronics product lines. The company's high leverage at around
10 times debt/EBITDA at June 30, 2017 reflects weak operating performance
trends and debt previously issued to fund acquisitions that have underperformed
expectations. Moody's is also concerned that high turnover
in the company's senior financial management level creates challenges
to executing a quick operational turnaround. 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 bulk of Gibson's debt matures in 2018 and liquidity is weak
because Gibson is reliant on new external capital to refinance the maturities.
Gibson's $375 million of outstanding senior secured notes
mature August 1, 2018 and the maturity of roughly $145 million
of outstanding secured bank loans will spring to July 23, 2018 if
the notes are not refinanced by that date.
The negative outlook reflects the uncertainty about the company's
ability to refinance its debt on acceptable terms and quickly execute
an operational turnaround.
Ratings could be downgraded if the company does not refinance its debt
obligations well before maturity, the company pursues a debt restructuring
that Moody's would likely consider a default, or potential
recovery values weaken. If revenue and earnings trends do not reverse
and begin to stabilize ratings could also be downgraded.
The company needs to materially improve its operating performance and
address its upcoming debt maturities before Moody's would consider
an upgrade.
The principal methodology used in these ratings was Consumer Durables
Industry published in April 2017. 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 approximate $1.2
billion.
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
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For any affected securities or rated entities receiving direct credit
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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: 1 212 553 0376
Client Service: 1 212 553 1653
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
No Related Data.
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