Guitar maker Gibson files for Chapter 11 bankruptcy

Alicia Cross
May 2, 2018

In recent years, Gibson faced tighter credit terms from its suppliers and growing pressure from new import regulations on rosewood, a crucial material for the company's high-end instruments, according to S&P Global Ratings. The company remains hopeful that they can re-emerge from bankruptcy intact, but with reported debts of between $100 million and $500 million on the books owed to numerous different creditors, it remains to be seen whether they will be able to pull it off.

The company's Memphis plant is moving from its current location. According to court filings, current noteholders include Silver Point Capital, Melody Capital Partners and funds affiliated with KKR Credit Advisors.

Legendary jazz guitar player Charlie Christian made history playing a Gibson ES-150 - one of the first ever electric guitars - through an amplifier with the Benny Goodman orchestra. Some feel it's a result of a shift in the music zeitgeist away from guitar-driven music and toward more digitally-produced styles like EDM and hip-hop. It also manufacturers other musical equipment, including amps, turntables and more. Gibson plans to wind down its Gibson's Innovations business, which is largely outside of the U.S.

Gibson guitars have been esteemed by generations of guitar legends. The company ran out of time for a turnaround as a bond maturity and springing term loan loomed in July.

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In response to our earlier report pointing to imminent bankruptcy, Gibson CEO Henry Juszkiewicz insisted that loan obligations were being met.

The maker of the storied Gibson Les Paul guitar, which has been in business since 1894, said it expects to keep operating while it reorganizes around its core businesses. Bloomberg notes that a news release from the company reveals plans to liquidate the division entirely. " The decision to re-focus on our core business, Musical Instruments, combined with the significant support from our noteholders, we believe will assure the company's long-term stability and financial health". Court papers call for a one-year consulting deal and compensation package for Juszkiewicz.

The company has already sold off some noncore brands, acquisitions that contributed to its burdensome debt load.

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