Gibson files for Chapter 11 bankruptcy protection

July 2018 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

July 2018 Issue

In a bid to refocus its attention on manufacturing musical instruments and audio products, as well as continuing the development of its portfolio of globally-recognised brands, Gibson Brands Inc. has reached a restructuring support agreement with its majority stakeholders.

To implement the agreement, Gibson and its US subsidiaries have filed pre-negotiated reorganisation cases under Chapter 11 of the US Bankruptcy Code in Wilmington, Delaware.

In conjunction with the restructuring agreement, the company has received commitments for $135m of debtor-in-possession financing from its existing noteholders. This financing, combined with cash generated from its operations, will provide Gibson with the liquidity necessary to maintain its operations in the ordinary course during reorganisation proceedings.

One of the fastest-growing companies in the music and sound industries, Gibson is a global leader in musical instruments, and consumer and professional audio. The company has a portfolio of over 100 well-recognised brand names, including Epiphone, Dobro, Valley Arts, Kramer, Steinberger, Hamilton, Chickering, Wurlitzer and the number one guitar brand, Gibson. The company’s audio brands include KRK Systems, TASCAM, Cerwin-Vega, Stanton, Integra, TEAC, TASCAM Professional Software and Esoteric.

The restructuring support agreement also supports Gibson’s key vendors, shippers and suppliers and provides for the restructuring of its balance sheet. Gibson expects to emerge from Chapter 11 with working capital financing, materially less debt, and a leaner and stronger musical instruments-focused platform that will allow it, and all of its employees, vendors, customers and other critical stakeholders, to succeed.

“Over the past 12 months, we have made substantial strides through an operational restructuring,” said Henry Juszkiewicz, chairman and chief executive of Gibson. “We have sold non-core brands, increased earnings and reduced working capital demands. The decision to re-focus on our core business, musical instruments, combined with the significant support from our noteholders, we believe will assure the company’s long-term stability and financial health. Importantly, this process will be virtually invisible to customers, all of whom can continue to rely on Gibson to provide unparalleled products and customer service.”

Mr Juszkiewicz and David Berryman, Gibson’s president, will each continue with the company upon emergence from Chapter 11 to facilitate a smooth transition and to support the realisation of future value from its core business. At the same time, the company’s Gibson Innovations business, which is largely outside the US and independent of the musical instruments business, will be wound down.

The wind-down of Gibson’s Innovations business is not expected to impact the company’s reorganisation around its core musical instruments and audio businesses.

Serving as Gibson’s chief restructuring officer is Alvarez and Marsal. Jefferies LLC is financial adviser and Goodwin is providing legal counsel. In addition, Paul, Weiss, Rifkind, Wharton & Garrison LLP is providing legal counsel and PJT Partners is financial adviser to the ad hoc group of unaffiliated noteholders that is supporting Gibson’s restructuring.

“We are grateful for the continued support from our employees, customers, dealers, partners and suppliers as we move through the restructuring process,” continued Mr Juszkiewicz. “The Gibson name is synonymous with quality and the Chapter 11 restructuring will allow future generations to experience the unrivalled sound, design and craftsmanship that our employees put into each Gibson product.

“Gibson Brands is not going out of business. We are making every precaution to ensure normal operations for our valued customers. The legal process is being used to implement a reorganisation of the musical instruments division, not liquidation,” he concluded.

Fraser Tennant