The company also intends to reduce its reported $1.3 billion in debt by nearly $800 million, including $375 million in Debtor-In-Possession financing from some existing note holders and lenders. It also intends to raise $335 million in new senior secured notes.
"Today we announced a very important and positive step forward to ensure the long-term financial strength of Guitar Center," said Guitar Center CEO Ron Japinga in a statement. "This agreement will allow us to significantly reduce our debt and reinvest in our business in order to better serve our customers and deliver on our mission of putting more music in the world. With ten consecutive quarters of growth prior to the impact from COVID-19, we have been pleased with our resilient financial performance during these challenging times created by the pandemic. As a result of this financial restructuring process, we will be better equipped to execute on and invest in our strategic growth initiatives and we will continue delivering through the strength of our brands, availability of our stores, customer-focused associate relationships, innovative music education programs and our expanding digital solutions."
The RSA, which Guitar Center expects will be complete by the end of this year, will allow the company and its related brands to continue operating and meeting its financial obligations to vendors, suppliers and employees. During the process, Guitar Center will keep operating its stores, websites, call centers and social media pages and continue to receive goods and ship orders as usual. It will additionally continue to honor all merchandise credits, prepaid lessons, rentals, gift cards, deposits, orders, financing and warranties.
While Guitar Center notes it is "pleased with its overall store footprint," the company adds that it is also exploring opportunities with real estate firm A&G to "optimize its real estate portfolio and other agreements to focus on investments that best position the Company to return to its growth trajectory prior to COVID19."
Guitar Center currently has 300 stores as well as 200 Music & Arts stores, which sell band and orchestral instruments, in the U.S.
Guitar Center's financial struggles began long before the pandemic, much of it brought on by consumers' shift to online retail and a decade-long dip in sales of its namesake product, guitars. Additionally, its 2007 leveraged buyout by private equity firm Bain Capital for approximately $2.1 billion saddled the company with over $1 billion in debt that the company has since struggled to dig its way out of.