Guitar Center completes partial exchange of debt into preferred stock

By Marisa Wong

Madison, Wis., April 3 - Guitar Center, Inc. announced that affiliates of the private equity group of Ares Management exchanged a portion of their holdings of Guitar Center's debt into preferred stock.

The debt-to-equity exchange gives Ares a controlling interest in the company. Affiliates of Bain Capital retained partial ownership of the company, along with representation on the company's board of directors, according to a press release.

Concurrently with the exchange, Guitar Center completed a refinancing of its remaining debt with proceeds from new senior secured notes, senior unsecured notes and a new revolving credit facility.

Aside from carrying a lower interest burden, the company's new debt structure provides for substantially more flexibility and improved credit terms over the next five years, the release noted.

As a result of these transactions, Guitar Center's total debt has been reduced by about $500 million and annual cash interest expense has been reduced by over $70 million.

"This new capital structure is the culmination of a lot of hard work over the last year. Further, it marks a significant moment for Guitar Center as we strengthen our company and welcome Ares Management and its retail expertise alongside that of Bain Capital," Mike Pratt, chief executive officer of Guitar Center, commented in the press release.

"We now have the necessary resources to expand our footprint and to invest in our people, stores and product assortment."

"These transactions significantly enhance Guitar Center's financial position. On a cash flow basis, we expect to save more than $70 million a year in cash interest expense. In addition, the removal of the restrictive term loan covenant and extension of the maturity dates of our facilities provides us with financial flexibility to execute our strategic plan and to grow the business," chief financial officer Tim Martin added.

Guitar Center is a Westlake Village, Calif.-based retailer of musical instruments and related products.

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