A report in the Nashville Post in early February said that “the situation facing the iconic Nashville-based music instrument maker, which has annual revenues of more than $1 billion, is far from normal: CFO Bill Lawrence recently left the company after less than a year on the job and just six months before $375 million of senior secured notes will mature. On top of that, another $145 million in bank loans will come due immediately if those notes, issued in 2013, are not refinanced by July 23.”
Kevin Cassidy, a senior credit officer at Moody’s Investors Service, which previously downgraded Gibson’s credit rating, told the Nashville Post that Gibson CEO Henry Juszkiewicz had only three options: “He and his team could negotiate an exchange of their debt coming due for new notes, which may not be feasible at a reasonable price. He also could be persuaded — or forced — 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.”
Now, in response to these reports and predictions, Gibson Brands announced that it has met all current obligations to the bondholders and is in the process of arranging a new credit facility to replace the bonds. The company says it expects the bonds to be refinanced “in the ordinary course of business.”
“These bonds expire as all fixed income instruments do at the end of their term,” says Juszkiewicz, adding that, as previously reported, the company is working with Jefferies investment bank to manage the refinancing process. “While the musical instrument and pro audio segments have been profitable and growing, they are still below the level of success we saw several years ago,” Mr. Juszkiewicz said.
Juszkiewicz also says that Gibson Brands is streamlining the Philips consumer audio brand it owns to better focus on products that have more potential for growth and cut products that don’t. The CEO predicted that doing so will result in the company’s best financial performance in its history and will allow it to pay back Gibson’s debts. Gibson Brands also says it’s near the conclusion of a comprehensives budget and strategic planning process that will identify areas where it can maximize its investments and areas where investments have not been paying off.
“With the refinancing and the improvement in operating performance from the actions that we are rolling out, we expect the company to be organized for success and growth for years to come,” Juszkiewicz says.