Milbank LLP represented retailer Guitar Center, Inc. and its affiliates (collectively “Guitar Center”) in Guitar Center’s chapter 11 cases in the US Bankruptcy Court for the Eastern District of Virginia, Richmond Division (the “Court”), culminating on December 17, 2020, when the Court confirmed Guitar Center’s prepackaged restructuring plan (the “Prepack Plan”) only 27 days after the filing of the case. Under the Prepack Plan, Guitar Center effected a comprehensive balance sheet restructuring, including the elimination of over $700 million in debt. As the first “straddle prepack” filed in the Richmond court, the case was groundbreaking for both its speed and means of implementation.
Guitar Center is the largest musical instrument retailer in the United States, with over 500 brick and mortar locations, 13,000 employees and revenues of over $2.3 billion in 2019. Despite Guitar Center’s strong performance for years leading up to the outbreak of the COVID-19 pandemic, by mid-2020, the challenges posed to the retail industry by the pandemic coupled with Guitar Center’s funded debt burden of nearly $1.4 billion required the company to pursue a comprehensive, long-term solution for its capital structure. Working closely with existing stakeholders, management and third-party investors, Milbank played a leading role in negotiating and implementing a comprehensive set of restructuring transactions to deleverage Guitar Center’s balance sheet and enhance its financial flexibility, all with minimal disruption to the company’s customers and trade relationships.
As a result of those efforts, on November 13, 2020, Guitar Center entered into an agreement with supermajorities of each class of its funded debt and its existing equity owners to support a restructuring. This agreement contemplated a consensual equitization of over $700 million of secured and unsecured note debt, a $165 million new money equity investment from existing and third party investors, a new $350 million high yield notes offering, and the replacement of Guitar Center’s existing asset-based loan with a new $375 million credit facility. Other key features of this agreement included committed “debtor-in-possession” financing, providing for all non-funded debt creditors to be paid in full, and requiring the restructuring to be implemented on an expedited timeline through the Prepack Plan to minimize the duration of the company’s stay in chapter 11 in the midst of the critical holiday season. Other key features of this agreement included committed “debtor-in-possession” financing, a provision for all non-funded debt creditors to be paid in full, and a requirement that the restructuring be implemented on an expedited timeline through the Prepack Plan to minimize the duration of the company’s stay in chapter 11 in the midst of the critical holiday season.
On November 20, 2020, Guitar Center commenced solicitation of the Prepack Plan, and the chapter 11 cases were filed one day later. The Court confirmed the Prepack Plan at a virtual hearing held on December 17, 2020, and Guitar Center emerged from chapter 11 on December 22, 2020.
The Milbank team representing Guitar Center is led by partners Dennis Dunne (Financial Restructuring), Adam Moses (Global Corporate), Michael Price (Financial Restructuring), and Andy Leblanc (Litigation & Arbitration and Financial Restructuring), as well as Tom Kreller (Financial Restructuring), Lauren Doyle (Financial Restructuring), Jason Anderson (Global Corporate), Brett Nadritch (Global Capital Markets), Jonathon Jackson (Global Capital Markets), Al Pisa (Alternative Investments), Russell Kestenbaum (Tax) and Mike Shah (Executive Compensation and Employee Benefits), special counsels Brian Kinney (Financial Restructuring), Jennifer Harris (Alternative Investments) and Samir Vora (Litigation & Arbitration) and associates Edward Linden, Rachel Franzoia and Mohammad Tehrani (Financial Restructuring), and Charlene Kim, Eunice Kang and Maggie Chou (Global Corporate).
