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Abu Dhabi, UAEFriday 22 June 2018

Iconic guitar firm Gibson files for bankruptcy

The company produced instruments for BB King, Elvis Presley and The Who’s Pete Townshend

Slash from Guns 'n' Roses is a keen devotee of the Gibson guitar brand. Ian Gavan/Getty Images
Slash from Guns 'n' Roses is a keen devotee of the Gibson guitar brand. Ian Gavan/Getty Images

Gibson Brands filed for bankruptcy protection, with lenders taking control of the American business that’s supplied guitars to B.B. King, Elvis Presley and Pete Townshend.

The Chapter 11 filing on Tuesday in Delaware keeps Gibson in business but gives ownership to noteholders, replacing stockholders that include chief executive Henry Juszkiewicz, the company’s leader for more than three decades. According to court filings, current noteholders include Silver Point Capital, Melody Capital Partners and funds affiliated with KKR Credit Advisors.

The restructuring will allow the instrument business to “unburden” itself of a consumer-electronics unit that Gibson blamed for its financial woes. Gibson owes as much as $500 million (Dh1.83 billion), and lenders will provide a new loan of up to $135m to keep the company in business, according to court papers.

Mr Juszkiewicz, who has found himself at odds with creditors in recent months, will continue with the company upon emergence from bankruptcy “to facilitate a smooth transition”, according to the agreement.

Gibson, founded in 1894, sells more than 170,000 guitars annually in 80 countries. Its guitars are US-made, with factories in Nashville and Memphis, Tennessee, and Bozeman, Montana. It also sells studio monitors, headphones, turntables and other musical instruments. Units also include the company’s Baldwin Piano business. All told, the music instruments business employs at least 875 people, according to court papers.

Its Gibson Innovations business, which sells audio products like speakers, headphones and DJ products was the source of its financial woes, according to a court statement from Brian J Fox, a managing director at Alvarez & Marsal who will serve as the company’s chief restructuring officer. Acquired through a leveraged transaction, the business faced significant sales declines due in part to a loss of credit insurance overseas. The unit will be wound down, according to a Gibson news release.

Mr Juszkiewicz bought the audio and home entertainment business from Koninklijke Philips in June 2014 for $135m as part of a bid to relaunch Gibson Guitars as Gibson Brands, a "music lifestyle" company. He also bought a line of consumer electronics from Japanese company Onkyo in his bid for diversification. But the purchases drained cash, and earnings plunged. The company ran out of time for a turnaround as a bond maturity and springing term loan loomed in July.

“The Gibson name is synonymous with quality and today’s actions will allow future generations to experience the unrivalled sound, design and craftsmanship that our employees put into each Gibson product,” Mr Juszkiewicz said in a statement.