Gibson Is Going Down

The Gibson Les Paul. An iconic guitar from an iconic brand. I still have my Les Paul from 1976, over four decades now.

Whereas Fender has been able to keep its head above water, Gibson will likely fail over the next few months.

From Moody’s August 2017 rating of Gibson:

Moody’s Investors Service downgraded Gibson Brands, Inc.’s (“Gibson”) Corporate Family Rating to Caa3 from Caa2, its Probability of Default Rating to Caa3-PD from Caa2-PD, and senior secured notes to Ca from Caa3. The rating action is due to Moody’s concern with Gibson’s weak operating performance, liquidity pressure from approaching maturities, and the view that the company’s capital structure is unsustainable. The rating outlook is negative.

“We feel that Gibson’s capital structure is unsustainable due to the uncertainty over its ability to refinance debt that comes due in July 2018 and August 2018 given its very high leverage and weak operating performance,” said Kevin Cassidy, Senior Credit Officer at Moody’s Investors Service.

And this from last week’s Nashville Post:

Kevin Cassidy, a senior credit officer at Moody”™s Investors Service, says Juszkiewicz essentially has just three options: He and his team could negotiate an exchange of their debt coming due for new notes, which may not be feasible at a reasonable price. He also could be persuaded ”” or forced ”” to give up some of his equity in exchange for the debt payments. Or he may end up taking one of the most globally recognized brands that calls Nashville home to bankruptcy court.

“This year is critical and they are running out of time ”” rapidly,” said Cassidy, who last summer downgraded Gibson”™s debt rating. “And if this ends in bankruptcy, he will give up the entire company.”

Whatever Gibson was many years ago, it is not the same company today.

Gawker summed the company up a few years back:

The iconic guitar company Gibson faces seemingly endless troubles, which include an easily enraged micromanaging CEO and a product line perceived as shoddy and overpriced. Based on what we”™ve heard lately, it is not a great employer or maker of guitars.

Other than being a financial basket case and making shoddy guitars with a nasty CEO and disengaged employees, everything else is going well at Gibson.