Beleaguered Gibson Brands Inc suffered another major setback on Wednesday when ratings agency Standard & Poor’s downgraded the company once again over concerns that it might default on its corporate debt. At the same time, according to a report from Bloomberg on Thursday, a group of unnamed bondholders claiming to own two thirds of the outstanding notes is planning to gain control of the troubled company and oust Chairman and CEO, Henry Juszkiewicz.
The S&P downrating comes as no surprise, but it is another severe blow. Reportedly, the company has $145 million in outstanding bank loans that will come due on 23rd July and a further $377 million of outstanding secured notes maturing on 1st August.
‘With multiple maturities looming and operating weakness ongoing, we believe Nashville-based Gibson Brands could default on its debt obligations over the next six months,’ said S&P analyst Francis Cusimano Jr.
S&P lowered its rating for Gibson to CCC-minus. A CCC – rating is generally taken to mean ‘Default imminent with little prospect for recovery.’
Meanwhile, an unnamed group of bondholders is claimed by Bloomberg to be planning to seize control of the company from Henry Juszkiewicz, who has been a controversial owner since he and group of friends took the company over from Norlin in 1986. Despite the company’s financial difficulties, it does not appear to be the core guitar business that has caused its problems, rather Juszkiewicz’s attempts to take Gibson Brands into the consumer electronics sector.
According to Bloomberg, a group of Gibson bondholders that it refers to obliquely as ‘people’ is trying to insist on a restructuring that would in effect mean they take control . Bloomberg says: ‘The holders don’t expect Gibson’s earnings will be strong enough to attract new money for a refinancing to head off a default looming later this year, and creditors are reluctant to invest more funds while Juszkiewicz is still in charge, the people said. They asked not to be identified because the plans remain private’.
However, on Thursday 22nd, a Nashville business report claimed that Gibson Brands Inc had been aware of the forthcoming downgrade in its S&P rating and added: ‘Gibson also realized that our asset-based lender has not changed the 12-month rolling earnings covenant to compensate for a bad April through June quarter and subsequent supply constraint issues in the quarter ended December 2017. Instead, they are choosing to give waivers every month’.
The report also said that Henry Juszkiewicz claimed the company’s third quarter results showed an improvement in net profitability after taxes just shy of $10 million, which means it has enjoyed ‘…two successive quarters of improvement in profitability, and a net profit after interest and taxes. We were able to pay down $20 million of debt during this period. We continue to be confident in accomplishing our refinancing and expect continuing improvement in operating results. We fully expect our ratings to improve once we announce our refinancing, which is in process’.
On the issue of the proposed ousting, Juszkiewicz told Bloomberg some bondholders are ‘not looking to get paid back and get interest, but have other intentions that are not necessarily my intentions. They’re trying to do everything possible to put the company in a worse position, and get us in a situation where they’re exclusively talking to us. But factually, we’ve made our interest payments, fulfilled our obligations, and our intent is to pay back all bondholders.’