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Guitar Center Files For Bankruptcy Due To COVID-19

The largest musical instrument and equipment retailer in the U.S., Guitar Center, had been trying to survive by offering virtual music lessons during the pandemic. Guitar Center operates through 269 locations, the majority of which are in malls.

There are two Guitar Center store locations in Western Pennsylvania, one in Monroeville and one in Robinson Township, as well as two in the San Diego region, in La Mesa and San Ysidro. Its sister brand includes Music & Arts that specializes in selling and renting of band and orchestral instruments with over 200 stores.

As lockdowns led to the closure of malls and physical stores in March, sales of the company crashed as customers chose to spend on necessity products and chose to let go of voluntary items. The retailer revealed that around 75% of its stores were forced to close during lockdowns.

According to Moody’s Investor Service, nonessential retailers were hit the hardest during the pandemic. The Guitar Center, said Moody’s, was especially more vulnerable considering that musical instruments are highly discretionary items. Since March, the musical instruments seller has reopened some locations while operating online.

In the bankruptcy filing, the 61-year old company revealed that it had raised around $165 million in new equity and lenders had reduced the debt by around $800 million. Guitar Center will be financed with the help of its parent company, Ares Management Corporation, along with new equity investor Brigade Capital Management as well as a fund managed by The Carlyle Group.

The Westlake Village-based firm claims to have liabilities and assets both in the range of $1 billion and $10 billion. The company disclosed in a statement that it has negotiated with existing lenders $375 million in debtor-in-possession while it plans to raise $335 million in new senior secured notes.

Guitar Center will continue to operate as normal and pay its employees during the bankruptcy process. However, it may not be able to utilize the holiday shopping boom. According to a poll by Gallup, around 28% of Americans will be spending less on holiday gifts this year as compared to the last year, hitting the highest percentage since 2012.

Several businesses have filed for bankruptcy this year prior to Guitar Center. These include Century 21, Lord &Taylor, Muji, Brooks Brothers, JCPenny, and Pier 1. With the second wave of the coronavirus peaking, there is still considerable uncertainty for businesses.

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