http://www.marketwatch.com/story/fender-music-to-claptons-ears-but-not-investors-2012-05-23Buried in this article is this little gem:
"Moreover, its future sales are closely linked to the prospects of its biggest customer, Guitar Center, which Moody’s recently downgraded to junk status, labeling the music retailer of “extremely poor quality.”"Also, form Moody's in "Music Trades":
GUITAR CENTER HAS APPROACHED LENDERS to extend the maturities of its $650 million secured debt by 2.5 years to April 2017. As an inducement, the retailer has agreed to a 1.5% increase in the interest rate to 500 basis points over Libor (London Interbank Offered Rate). The amended effective borrowing rate would be approximately 9.9%. The company has also asked to defer 50% of the interest payments on another $622 million term loan for 18 months.
According to Moody's Investors Services, this combination of amendments and extensions "provide default avoidance." A Moody's report concluded, "Ratings continue to reflect Guitar Center's unsustainable capital structure over the long term at current levels of operating performance, given the sizable level of operating income growth needed to bring leveraged and interest coverage to more reasonable levels." A Moody's analyst concluded that growth in sales, comparable store sales, and profits will not be sufficient to trim the company's approximately $1.6 billion debt load to a more manageable level. However, they added, "Guitar Center's liquidity is, and is expected to remain, good," given that there are no sizable debt payments due until April 2013.
Separately, Moody's noted that with annual revenues of $2 billion, Guitar Center's current earnings before interest, taxes, depreciation, and amortization (EBITDA), estimated at $170 million, is insufficient to cover its interest burden, and that "operating performance will only modestly improve."Now, what do you suppose Bain's history is in dealing with companies in this position?
$125 million in liquidity vs $1.6 billion in loans. Refinancing at a crappier rate, no less, and begging for deferments.
There are several factories across America that can tell you how this goes.
Just head to the unemployment office to find their former employees.
Bain bought GC through loans they took out
using GC as the collateral.
In case you weren't aware, that means they didn't have to spend a dime of their own money.
Lack of regulation allows this to happen.
You can buy a company with the collateral that
you don't even actually have yet, until you buy said company.
Which is then saddled with paying back the
EXACT SAME LOAN you just took out to buy it.
All completely legal, and how crooks, like Bain, make easy money.
When GC goes down, Bain doesn't really lose out.
They gut GC, liquidate what they must, and walk away from it.
Just another bankrupt shell of a company and on to the next "investment".
Yet, they continue to open more stores, in the mean time, against loans at a lousy rate.
They continue to take their underpaid, untrained, high turnover staff and attempt to build lesson and instrument repair shops against Mom and Pops that have been in the business for decades and earned their respective communities business properly.
It's a desperate 11th hour ploy that they just don't have the skill to actually pull off successfully.
If anything, they are bound to push customers back into the arms of other stores, once they experience GC's "customer service".
I'm just saying, I see where this is headed, and I like what I see...
This is what happens when you put a bunch of 80's/90's wannabe posers in charge of a business with no actual business experience.
Sooner or later, the truth of their ineptitude was bound to show.
Drink the Kool-Aid your managers are selling you, if you like, GC worker that we all know is lurking behind a keyboard somewhere reaing this, afraid to put in their two cents for fear of getting caught.
The people I really do feel bad about are those 5-10year salespeople out there that have been with the company a long time, but have no Plan B.
As the ship sinks, they are gonna find that they don't have much to put on a resume any college kid couldn't smoke, or Best Buy/Walmart asst manager, for that matter.
Best get to working on that Plan B awful quick.
