Storied Gibson Guitar Company Falls to Debt Overload

By Yuri Yukhimchuk @ Shutterstock.com

For nearly a decade it has gone without question that companies would take on debt to finance acquisitions. With interests rates so low, investor groups were practically forcing companies to buy competitors and other businesses to expand revenue streams. Managers were only to happy to oblige.

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Gibson, maker of guitars and audio equipment, is the latest storied business to fall victim to low rate debt offered by private equity groups looking to cash in on a strong brand. Now, the private equity crowd will take control of Gibson after its bets have gone bad. Becky Yerak reports:

Under a restructuring pact filed with Gibson’s chapter 11 bankruptcy petition, a group of bondholders—among them funds managed by KKR & Co., Silver Point Capital LP and Melody Capital Partners LP—will take control of Gibson’s musical-instrument business.

The privately held Gibson is owned by Mr. Juszkiewicz and David Berryman, who acquired Gibson in 1986 and will remain with the company, at least for a time, after it leaves bankruptcy.

It was under Mr. Juszkiewicz’s time as Gibson’s CEO that the company tried to pivot to a lifestyle brand, dropping the “Guitar” from its name and taking on the corporate moniker “Gibson Brands.”

Gibson made a misstep a few years ago when it installed automatic tuners that weren’t well received, says one industry observer.

“It hurt their sales but it was a solvable problem,” said Brian Majeski, editor of Music Trades, a musical-instrument-industry trade magazine.

“The guitar business is OK,” he said.

Mr. Majeski said Gibson’s problem was that it took on too much debt to buy a consumer-electronics business that collapsed.

E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.