Nashville Post reports that Gibson has found itself in dire financial situation, with a financial expert saying the company is “rapidly running out of time” to resolve serious debt issues that could shut down the iconic guitar manufacturer.
According to the report, the company has to sort out $375 million of upcoming repayments, with additional $145 million due if the first amount is not serviced by July 23.
The source adds that observers have stated that “less than six months out from those crucial deadlines, the prospects for an orderly refinancing look slim.”
The company’s problems were reportedly mostly caused by a drop in sales in its electronics operations in recent years.
The source adds that Kevin Cassidy, a senior credit officer at Moody’s Investors Service – who downgraded Gibson‘s debt rating last summer – said CEO and owner Henry Juszkiewicz essentially has only three options: to “negotiate an exchange of their debt coming due for new notes, which may not be feasible at a reasonable price,” “to give up some of his equity in exchange for the debt payments,” or “he may end up taking one of the most globally recognized brands that calls Nashville home to bankruptcy court.”
Cassidy stated: “This year is critical and they are running out of time – rapidly. And if this ends in bankruptcy, he [Juszkiewicz] will give up the entire company.
“Some type of restructuring will be necessary. The core business is a very stable business, and a sustainable one. But you have a balance sheet problem and an operational problem.”
Debtwire reporter Reshmi Basu stated: “At the end of the day, someone will take control of this company – be it the debtors or the bondholders. This has been a long time coming.”
An equity firm called GSO Capital Partners brought in an emergency $130 million loan last year, leaving bond holders worried about the security of their investment. Additionally, “lack of clarity” from Gibson only made the situation worse.
The source also noted: “Gibson needs to report by next week its final numbers for its fiscal third quarter to stakeholders. One thing bond owners will be watching for is an improvement in the company’s electronics business, which has been built up in the past few years via debt-fueled acquisitions but has seen sales slump of late.
“Still, even a solid turnaround on that front won’t be enough for Juszkiewicz to avoid difficult conversations.”