Gibson Guitar Structures a $135 Million Bankruptcy Lifeline
Gibson Guitars has won approval for a financing package valued at $135 million in a restructuring loan that was agreed upon by Gibson, their various shareholders and GSO Capital Partners. With this move, the company will manage to keep the company afloat while saving a few employees from facing the axe.
This crucial financial injection will see the company stay in operation for a little longer as they try to get back on track. However, the company may not be out of the woods just yet as companies claiming unpaid debt are also looking to benefit from this loan. It is however still not clear just how the claims are going to be settled just yet.
Gibson Guitars filed for chapter 11 bankruptcy protection from a number of its creditors in the month of May. According to their paperwork filed under the bankruptcy suit, the company had been failing to meet supplier obligations in the months before they filed. These unpaid bills are said to run into just more than $1billion dollars with the bankruptcy proceedings already covering a half a million dollar tranche.
This move came with a number of restructuring strategies that included liquidation of its consumer electronics business and turning their focus solely to musical instruments. Divestment of non-core assets was also part of the plan and this included their long-term lease on the Tower Records building located in Hollywood.
This building lease brought to the forefront issues of mismanagement and bloat that had long affected the intended revenue stream. This is mostly because the building was not really being used to add value to the Gibson brand or even sell Gibson products, notably their guitars. The only thing that perhaps kept this building standing was the fact that it was considered to be a historical relic that needed to be preserved.
Gibson's attorneys, in an elaborate plan that was presented to the U.S Bankruptcy Court judge Christopher Sontchi, enumerate that they had in the past month paid up a revolving debt valued at $20 million. The plan did not however go down with every party as the disconcerted debtors, understandably so, argued that the plan not added millions in unnecessary costs, but it also placed relatively unencumbered assets under liens. Moreover, they felt that the plan exposed lenders to fresh liabilities.
Whether or not Gibson Guitars can turn their fortunes around given their new lifeline remains to be anyone's guess. While they can rely on their brand name to carry them through this period, it will serve well to remember that their customer base can just as easily buy a cheaper guitar from China. If anything, going by the plunging guitar sales in the U.S, it is highly probable that Gibson will turn into a niche category in the near future.
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