Credit Downgrade for Gibson

Gibson Brands has had its credit downgraded by Moody’s, with the brand’s corporate family rating (CFR) dropping to Caa1 from B3. 

Poor sales of the 2015 guitar range, risk associated with the consumer electronics business, high leverage, and high turnover among senior financial management were factors behind the move. Moody’s notes that the downgrade also reflects the risk that the company may not be able to meet near-term financial commitments.

“The downgrade reflects the weak performance and the resulting very high leverage and also the additional financial obligations Gibson incurred from its agreement with a consumer electronics supplier to settle overdue payables and the stress it puts on company’s liquidity profile,” says Kevin Cassidy, senior credit officer at Moody’s Investors Service.

Of late, Gibson has been aggressively acquiring consumer electronics companies, including Stanton, KRK Systems, and Onkyo.

Those acquisitions have left the company increasingly leveraged, with a debt to earnings before interest, taxes, depreciation and amortization ratio of 8.5 times, according to Moody’s. That’s up from a debt to EBITDA ratio of 5-times at this time in 2015.

Gibson says it is already seeing a financial turnaround on the sales side, and the company has a new CFO to help address stability concerns about senior financial management. 

“The company has posted quarterly results for our quarter ending December 2015 that were materially better than they were for the prior year,” Gibson chairman and CEO Henry Juszkiewicz said. “While we experienced a soft reception to our 2015 products, we have since introduced our improved 2016 product line that is performing extremely well both in sales to retailers and sell through to consumers globally. We feel we are on an upward trend, poised for an excellent year and are confident of the future.”