Guitar Center files for Chapter 11 bankruptcy

BY Richard Summerfield

Guitar Center, the biggest musical instrument retailer in the US, has filed for Chapter 11 bankruptcy as the impact of COVID-19 continues to be felt across the retail sector.

The filing in the Bankruptcy Court of the Eastern District of Virginia will allow Guitar Center and its related brands to continue to operate in the normal course while it restructures. The company said it has liabilities of $1bn to $10bn, with a similar range for its assets, according to the filing.

Under the terms of the company’s restructuring plan, Guitar Center, which has around 300 stores across the US, and its sister brand Music & Arts, which has more than 200 stores specialising in band and orchestral instruments for sale and rent, will reduce their debt by nearly $800m.

Guitar Center has secured up to $165m in new equity investments from its equity sponsor, a fund managed by private equity firm Ares Management Corporation, and new equity investors, which include a fund managed by The Carlyle Group and funds managed by Brigade Capital Management.

Guitar Center has arranged $375m in debtor-in-possession (DIP) financing, which is being provided by a number of its existing noteholders and ABL lenders. In connection with the plan, the company currently intends to raise $335m in new senior secured notes. UBS Investment Bank will serve as the lead placement agent in connection with this effort. Guitar Center expects to emerge from bankruptcy protection before the end of the year.

“This is an important and positive step in our process to significantly reduce our debt and enhance our ability to reinvest in our business to support long-term growth,” said Ron Japinga, chief executive of Guitar Center. “Throughout this process, we will continue to serve our customers and deliver on our mission of putting more music in the world. Given the strong level of support from our lenders and creditors, we expect to complete the process before the end of this year.”

Prior to the outbreak of COVID-19, the company was already under significant financial pressure as competition from online rivals intensified and it struggled to cope with its heavy debt load, a legacy of its leveraged buyouts. The retailer was first acquired by private equity firm Bain Capital. Ares Management then took control in 2014, in a deal aimed at reducing Guitar Center’s debt; despite these efforts, the company continued to carry around $1.3bn worth of debt from the Bain takeover.

News: Guitar Center is filing for bankruptcy

Natural gas producer Gulfport Energy files for Chapter 11

BY Fraser Tennant

In a bid to reduce its debt by approximately $1.25bn, natural gas and oil company Gulfport Energy Corporation, along with its wholly owned subsidiaries, has filed for Chapter 11 bankruptcy protection in order to implement a restructuring support agreement (RSA).

Attached to the RSA is a pre-negotiated’ restructuring plan that will strengthen Gulfport’s balance sheet, significantly reduce its funded debt, and lower ongoing operational costs. The company also plans to  issue $550m of new senior unsecured notes under the plan to existing unsecured creditors of certain Gulfport subsidiaries.

In addition, Gulfport has secured $262.5m in debtor-in-possession (DIP) financing from its existing lenders under its revolving credit facility, including $105m in new money that will be available upon court approval. The financing is structured to fund Gulfport’s ordinary course operations during the Chapter 11 proceedings, including employee wages and benefits and payments to suppliers and vendors.

Gulfport Energy is one of a growing number of US oil and gas companies that have filed for Chapter 11 bankruptcy protection after the coronavirus (COVID-19) pandemic deepened their struggle with low prices and excessive debt.

“Despite efforts to streamline our business, our large legacy debt burden in addition to significant legacy firm transportation commitments created a balance sheet and cost structure that was unsustainable in the current market environment,” said David M. Wood, president and chief executive of Gulfport Energy. “After working diligently to explore all strategic and financial options available, Gulfport’s board of directors determined that commencing a Chapter 11 process is in the best interest of the company and its stakeholders.”

Headquartered in Oklahoma City and employing 259 people, Gulfport Energy is an independent returns-oriented, gas-weighted, exploration and development company, as well as being one of the largest producers of natural gas in the US.

“We expect to exit the Chapter 11 process with leverage below two times and rapidly deliver thereafter due to a much-improved cost structure driven by reduced legacy firm transport commitments and costs,” continued Mr Wood. “These improvements will significantly improve our ability to generate cash flow and value for our stakeholders going forward.”

Furthermore, Gulfport hopes to safeguard its future with the help of commitment from its existing lenders to provide $580m in exit financing upon emergence from Chapter 11.

Mr Wood concluded: “We hope to move through the restructuring process quickly and efficiently and emerge as a stronger company positioned for future success.”

News: Natural gas producer Gulfport Energy files for bankruptcy

Pacific Drilling opts for Chapter 11

BY Fraser Tennant

Due to significant disruption in the offshore drilling market caused by the coronavirus (COVID-19) pandemic, offshore ultra-deepwater drilling company Pacific Drilling has filed for Chapter 11 bankruptcy protection.

This is the second time the company has filed for Chapter 11 in less than three years, having previously emerged from bankruptcy in late 2018.

Alongside the filing, the Luxembourg-based Pacific Drilling and certain of its domestic and international subsidiaries have entered into a restructuring support agreement (RSA) with an ad hoc group of the largest holders of its outstanding bond debt.

The RSA is intended to eliminate the company’s approximately $1.1bn in principal amount of outstanding bond debt through the cancellation and exchange of debt for new equity. Pacific Drilling expects to emerge from Chapter 11 by the end of the year with access to new capital in the form of an $80m exit facility and with approximately $100m of cash and cash equivalents on the balance sheet.

“After spending months evaluating options for addressing our long term financial needs in light of challenging market and operational conditions, we are pleased to reach agreement that paves the way for an expeditious Chapter 11 restructuring process,” said Bernie Wolford, chief executive of Pacific Drilling.

He continued: “This restructuring is intended to enhance our financial flexibility by eliminating our entire prepetition debt and cash interest burden. We expect to emerge from this process in a stronger position to compete in today’s challenging, lower-commodity-price environment.”

Since the beginning of 2020, the global health crisis caused by COVID-19 and the resulting oil supply and demand imbalance have caused significant disruption in world economies and markets, including a substantial decline in the price of oil. The impact of these market conditions on Pacific Drilling’s business has been direct and significantly negative, rendering its current capital structure unsustainable over the long term.

However, with approximately $120m of cash and cash equivalents, and seven of the most advanced high-specification drillships in the world, Pacific Drilling intends to continue its worldwide operations as usual, deliver services for existing and prospective clients and, subject to court approval, pay all obligations incurred during the Chapter 11 case.

Mr Wolford concluded: “I appreciate the ongoing support of our employees, clients and vendors as we complete this accelerated restructuring process. We remain committed to delivering the safest, most efficient and reliable deepwater drilling services in the industry.”

News: Pacific Drilling files for Chapter 11 to eliminate $1.1 billion of debt

US denim retailer True Religion exits Chapter 11

BY Fraser Tennant

For the second time in three years, upmarket US denim brand True Religion has successfully emerged from Chapter 11 bankruptcy protection.

The emergence was achieved under a court-approved plan of reorganisation that significantly reduced the company’s debt as well as providing liquidity to execute its growth plans over the next several years.

Founded in 2002, True Religion first filed for Chapter 11 protection in July 2017 during a period when it struggled to adapt to a generational shift in shopping habits, and again in April 2020 when the full impact of the coronavirus (COVID-19) pandemic on retailers became clear.

However, even amid a global pandemic, True Religion’s strong brand identity has enabled the development and confirmation of a plan of reorganisation that paves the way for its continued success.

“We want to thank our loyal and diverse customer base, which remained faithful to the brand both prior to and during the pandemic,” said Michael Buckley, chief executive of True Religion. “We are incredibly thankful and completely indebted to our customers who have showed us consistent support during a period that was challenging in so many ways.”

Mr Buckley, who rejoined True Religion in November 2019 to execute the necessary changes to achieve the company’s full potential across its various channels, previously served as president from 2006 to 2010 during a phase of rapid growth.

“Although we had to make the very difficult decision to lower our overall store count and employee base, our successful emergence from bankruptcy as a stronger company is a testament to the contribution of all of our employees throughout the brand’s history,” added Mr Buckley.

Additionally, collaboration from lenders and other vendor partners in the bankruptcy case also proved pivotal in helping True Religion to emerge from Chapter 11.

Mr Buckley concluded: “The reorganisation has allowed True Religion to reduce its operating costs and lower its debt load, and emerge a profitable, lean operating company with a healthy balance sheet. The path is now clear to continue the reinvigoration of an iconic American brand.”

News: Retailer True Religion emerges from speedy Chapter 11 bankruptcy

Oil sector supplier Utex Industries files for Chapter 11

BY Fraser Tennant

In yet another bankruptcy related to the impact of coronavirus (COVID-19) on oil producers and the companies that rely on them for business, sealing product manufacturer Utex Industries has filed for Chapter 11.

The filing will be followed by a balance sheet restructuring intended to reduce Utex's funded debt by approximately $700m and provide it with up to $42.5m in new financing. The process is expected to be completed in a matter of weeks.

Utex’s plan is supported by over 81.6 percent and 90.4 percent of its first and second lien lenders, respectively. Utex’s lenders have also agreed to provide Utex with debtor-in-possession (DIP) financing and the consensual use of cash collateral to enable the company to operate its business in the ordinary course.

“After an extensive analysis of strategic and financial options for the Company, and after months of negotiations, we are very pleased to have reached an agreement for a consensual restructuring with our secured lenders and other stakeholders,” said Mike Balas, chief executive of Utex. “We believe that the restructuring contemplated by the Agreement will provide us with the capital structure and liquidity to compete and grow in today's business environment.”

A market-leading manufacturing business headquartered in Houston, Texas, Utex operates manufacturing, distribution and technical sales facilities in the US and abroad and has approximately 500 employees. The company supports a diverse customer base in the oil & gas, industrial, mining, and water end markets.

Throughout the Chapter 11 restructuring process, Utex expects to continue to operate its business without disruption to its vendors, customers, employees or other partners, and, subject to customary approvals, will have access to substantial liquidity to meet its obligations. This includes funding employee wages and benefits, and paying vendors and suppliers for all goods and services.

Mr Balas concluded: “I am grateful to our dedicated employees who have continued to work hard in this challenging business environment, and this restructuring will position us and our partners for success in the years to come.”

News: Utex Industries to Shed $700 Million Debt Through Chapter 11 Bankruptcy