Moody’s has downgraded Guitar Center’s corporate family rating to B3, from B2, on concerns about the company’s significant and relatively near-term debt maturities.
At the same time, Moody’s lowered the company’s senior secured first-lien notes to B3, from B2, while its unsecured notes were downgraded to Caa2, from Caa1.
All of Guitar Center’s ratings were also placed on review for downgrade.
“Excluding the company’s $375 million asset-backed loan facility, approximately 65% of the company’s long-term debt matures in about 18 months,” Keith Foley, a Senior Vice President at Moody’s said in the report.
Guitar Center’s $375 million asset-based credit facility (not-rated) matures on April 2, 2019. The company’s $615 million of 6.5% senior secured first-lien notes mature on April 15, 2019. Its $325 million of 9.625% senior unsecured notes do not mature until 2020.
Guitar Center technically still has about 18 months to refinance these debt obligations, and Moody’s expects the company’s operations will be stable. However, Moody’s said in the report that it believes the more compressed that time period becomes from this point on, the more challenging it will be for the company to address its debt maturity profile, particularly in light of the 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—limited revenue visibility regarding the retail environment for musical instruments and modest free cash flow,” Foley said.
Guitar Center, one of the largest retailers of music products in the United States based on revenue, operates as a wholly-owned subsidiary of Guitar Center Holdings, Inc. — Rachelle Kakouris
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