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28 Nov 2017
Approximately $940 million of rated debt affected.
New York, November 28, 2017 -- Moody's Investors Service (Moody's) today downgraded Guitar Center Inc.'s
(GCI) ratings. The downgrade and negative outlook reflect Moody's
continued concern regarding GCI's significant and relatively near-term
debt maturities. Excluding the company's $375 million asset-backed
loan facility, approximately 65% of the company's long-term
debt matures in April 2019.
GCI's Corporate Family Rating was downgraded to Caa1 from B3,
and its Probability of Default Rating was downgraded to Caa1-PD
from B3-PD. At the same time, GCI's senior secured
first lien notes were downgraded to Caa1 from B3 while its unsecured notes
were downgraded to Caa3 from Caa2. The rating outlook is negative.
This concludes the review for downgrade that was initiated on Sep.
28, 2017.
"The downgrade considers that despite Moody's expectation
that GCI will generate relatively stable earnings and positive free cash
flow, a significant majority of the company's debt matures
in less than 18 months," stated Keith Foley, a Senior
Vice President at Moody's. "GCI's cash flow on
its own will not be enough to materially reduce debt and improve leverage
within the time frame the company has to address its debt maturities,"
added Foley.
Downgrades:
..Issuer: Guitar Center Inc.
.... Probability of Default Rating,
Downgraded to Caa1-PD from B3-PD
.... Corporate Family Rating, Downgraded
to Caa1 from B3
....Senior Secured Regular Bond/Debenture,
Downgraded to Caa1(LGD4) from B3(LGD3)
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Caa3(LGD5) from Caa2(LGD5)
Outlook Actions:
..Issuer: Guitar Center Inc.
....Outlook, Changed To Negative From
Rating Under Review
RATINGS RATIONALE
GCI's $375 million asset-based credit facility (not-rated)
matures on April 2, 2019. The company's $615 mil 6.5%
senior secured 1st lien notes mature on April 15, 2019. GCI's
$325 million 9.625% senior unsecured notes do not
mature until 2020.
Although GCI is currently in negotiations to refinance its outstanding
debt, and still has time to refinance these debt obligations,
Moody's believes the more compressed that time period becomes from this
point on, the more challenging it will be for GCI to address its
debt maturity profile particularly in light of the key challenges faced
by the company. These challenges include the company's high leverage
-- debt/EBITDA on a Moody's adjusted basis is about 6.2
times -- and limited revenue visibility regarding the retail environment
for musical instruments.
The negative outlook reflects continued concern on Moody's part
with respect to the GCI's ability to extend its debt maturity profile
and obtain terms and pricing terms that will enable it to compete in the
specialty retail environment over the longer-term.
GCI's ratings could be lowered if, for any reason prior to
maturity, the company executes a refinancing in a manner that involves
impairment to existing lenders -- an event that Moody's
would deem to be a distressed exchange -- or if it appears
that the company will not be able to refinance is near-term debt
maturities by the end of March 2018, approximately one-year
before the company's $615 mil 6.5% senior secured
notes come due. The degree and timing of any downgrade depends
on Moody's assessment of GCI's refinancing plans and opportunities at
various points going forward.
The rating outlook would be revised back to stable if GCI is able to push
out its debt maturities prior to maturity without any impairment to creditors.
A higher rating is possible over the long-term, but would
also require that GCI, materially improve its credit metrics --
achieve and maintain lease-adjusted debt/EBITDA of at least 4.5
times and EBIT/interest at or above 2.5 times.
GCI is the largest retailer of music products in the United States based
on revenues. GCI is a wholly-owned subsidiary of Guitar
Center Holdings, Inc. The company has three reportable business
segments, comprised of Guitar Center, Musician's Friend and
Music & Arts. GCI is a private company and does not publicly
disclose detailed financial information.
The principal methodology used in these ratings was Retail Industry published
in October 2015. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
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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.
Keith Foley
Senior Vice President
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
Janice Hofferber, 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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