The music could stop at Guitar Center in the near future.
The retailer is preparing for bankruptcy after missing a $45 million interest payment on its debt, the New York Times reported. The company has reached out to creditors to explore a plan where it could emerge from bankruptcy in 2021.
The possibility of bankruptcy comes after Moody’s and S&P downgraded Guitar Center’s rating this spring over concerns about its leverage.
A spokesperson for Guitar Center did not immediately return a request for comment.
Guitar Center occupies prime real estate in New York City, including a 30,000-square-foot location near Union Square in Manhattan. The retailer is one of the largest remaining tenants at Kushner Companies’ Times Square retail condo at 229 West 43rd Street, occupying 28,000 square feet. (The music and film publication Consequence of Sound called the Times Square property the “worst place on earth”).
Two of the largest tenants at the property have vacated since last year driving occupancy down to 52 percent. A recent appraisal of the 248,457-square-foot property slashed its value by 80 percent, to $92.5 million, from $470 million in 2017, according to Trepp.
Guitar Center has faced issues with its debt since earlier this year, when it engaged in a distressed debt exchange and skipped an interest payment. The exchange allowed the company to buy $32.5 million in new notes and use the money to meet its April interest payment.
Moody’s said the “downgrades reflect the high likelihood of further restructuring transactions to address the company’s high leverage and upcoming maturities.”
Guitar Center, which was founded in 1959, has close to 300 stores nationwide. The company had an estimated debt of $1.3 billion as of March, according to Moody’s.
Bain Capital acquired the company in 2007 for $2.1 billion, heavily financed by debt. In 2014, Ares Management gained a controlling stake in the company by converting its debt position to an equity position.
A spokesperson for Ares declined to comment.
Nationally, retailers are struggling as the coronavirus pandemic has kept people indoors and away from malls and outlets. In some rare good news, national retailers paid 86 percent of their September rent, up from 83 percent in August, according to Datex Property Solutions report.