Affiliates of the Private Equity Group of Ares Management recently exchanged a portion of their holdings of Guitar Center’s debt into preferred stock and assumed a controlling interest in the company. Bain Capital retained partial ownership of the company, along with representation on the Board of Directors.
As a result of these transactions, Guitar Center representatives say that the company’s total debt has been reduced by approximately $500 million and annual cash interest expense has been reduced by over $70 million. The company says that the improved financial position of the company will enable Guitar Center’s management team to further invest in its people, store base, and brands to accelerate growth.
Concurrently with the partial debt-to-equity exchange, Guitar Center completed a refinancing of its remaining indebtedness with proceeds from new senior secured notes, senior unsecured notes, and a new revolving credit facility. Aside from carrying a lower interest burden, the company’s new debt structure provides for substantially more flexibility and improved credit terms over the next five years.
“This new capital structure is the culmination of a lot of hard work over the last year," said GC CEO Mike Pratt. "Further, it marks a significant moment for Guitar Center as we strengthen our company and welcome Ares Management and its retail expertise alongside that of Bain Capital."
