December 17, 2020 – The Court hearing the Guitar Center cases confirmed the Debtors’ Amended Prepackaged Plan of Reorganization [Docket No. 320]. 

On November 21, 2020, Guitar Center, Inc. and seven affiliated Debtors (“Guitar Center” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Eastern District of Virginia, lead case number 20-34656. At filing, the Debtors,"the world’s leading musical instrument retailer," noted estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn ($1,329.8mn of funded debt).

In a press release announcing the confirmation, the Debtors state: “Upon emergence, the Company is expecting to operate with a strengthened capital structure that will eliminate more than $800 million of existing debt. In connection with the Plan, the Company raised $350 million in new senior secured notes. In addition, several banks led by Wells Fargo and JPMorgan are expected to fund a new $375 million secured asset based financing facility, which would provide significant additional liquidity for the business. The new asset based financing facility, new senior secured notes and $165 million in new equity investments from a fund managed by Ares Management Corporation, funds managed by Brigade Capital Management and a fund managed by The Carlyle Group, are expected to provide the Company with the capital required to support ongoing operations, invest in its strategic growth initiatives and execute its business plan.

As planned, the Company expects to emerge from Chapter 11 by December 31….”

The Debtors operated as a public company until October 2007 when entities substantially owned by affiliates of Bain Capital Partners, LLC (“Bain Capital”) and a co-investor acquired ownership of the Debtors. In 2014, the Debtors undertook a series of transactions to restructure their capitalization. As part of this recapitalization, Ares PE Extended Value Fund LP ("Ares," an affiliate of Ares Management Corporation), which held certain of the Debtors’ notes at the time, acquired majority ownership of the outstanding voting securities. Then in December 2017, Ares purchased all of the common shares owned by Bain Capital and its co-investor. Prepetition, Ares was the owner of substantially all of the outstanding voting equity.

At filing, the Debtors cited the failure of out-of-court restructuring efforts to bring legacy debt loads under control, particularly lamenting its choice of PIK; noting that consolidated net losses of $42.8 million and $61.9 million in the 2018 and 2019 fiscal years, respectively, were largely as a result of interest obligations under pricey (13%) paid-in-kind notes issued in its 2018 restructuring (see further below).

RSA and Prepackaged Plan Overview

The Debtors operated as a public company until October 2007 when entities substantially owned by affiliates of Bain Capital Partners, LLC (“Bain Capital”) and a co-investor acquired ownership of the Debtors. In 2014, the Debtors undertook a series of transactions to restructure their capitalization. As part of this recapitalization, Ares PE Extended Value Fund LP ("Ares," an affiliate of Ares Management Corporation), which held certain of the Debtors’ notes at the time, acquired majority ownership of the outstanding voting securities. Then in December 2017, Ares purchased all of the common shares owned by Bain Capital and its co-investor. Prepetition, Ares was the owner of substantially all of the outstanding voting equity.

At filing, the Debtors cited the failure of out-of-court restructuring efforts to bring legacy debt loads under control, particularly lamenting its choice of PIK; noting that consolidated net losses of $42.8 million and $61.9 million in the 2018 and 2019 fiscal years, respectively, were largely as a result of interest obligations under pricey (13%) paid-in-kind notes issued in its 2018 restructuring (see further below).

The Debtors' memorandum in support of Plan confirmation provided the following pre-Plan confirmation hearing summation: "The Plan is the result of extensive good faith negotiations between the Debtors and their key stakeholders, provides for a comprehensive and value-maximizing restructuring of the Debtors and is being implemented through a ‘straddle pre-pack’ structure. The efficient timeline provided by this structure will minimize the uncertainty of the Debtors having to operate under bankruptcy protection while simultaneously ensuring a robust voting period for the Voting Classes (as defined below). 

Among other things, the Plan will allow the Debtors to:

(a) obtain a $165 million equity investment from the Investor Support Parties (subject to reduction to no less than $150 million); 

(b) pay holders of Allowed General Unsecured Claims in full or otherwise leave them unimpaired; 

(c) pay holders of Superpriority Secured Notes Claims in full in Cash; 

(d) provide holders of Secured Notes Claims with $450 million in Cash and $160 million in New Preferred Equity;

(e) provide holders of Unsecured Notes Claims with $2 million in New Junior Preferred Equity; and 

(f) obtain exit financing in the form of a $375 million New ABL Facility and $350 million in New First Lien Debt. 

The de-leveraging transactions contemplated by the Plan will eliminate approximately $800 million in funded debt from the Reorganized Debtors’ balance sheet and provide for excess liquidity of approximately $100 million, positioning the Debtors to improve their financial condition and overall creditworthiness and emerge from chapter 11 a stronger, better capitalized company—a remarkable result for a retail company in the current environment. The Plan has the overwhelming support of the Debtors’ economic stakeholders, including the Creditor Support Parties and the Sponsor Support Party, as well as the support of the other Investor Support Parties. With their balance sheet right-sized, the Reorganized Debtors will be able to continue as the leading United States retailers of musical instruments and related products and services."

The Disclosure Statement provides: "After more than three (3) months of diligence and arms’ length negotiations with their creditors, the Debtors reached an agreement with the Creditor Support Parties, and the Investor Support Parties, who collectively hold, in aggregate: (a) 100% of the Superpriority Secured Notes; (b) more than 71% of the Secured Notes; (c) more than 84% of the Unsecured Notes; and 100% of the Existing Common Equity [NB: The RSA is attached to the Disclosure Statement at Exhibit B].

As set forth in the Restructuring Support Agreement, the Debtors and the Support Parties agreed to mutually support confirmation of the Plan and the consummation of the Restructuring Transactions, which contemplates, among other things:

1. the entry into the $325 million Term DIP Facility, which will be refinanced with the proceeds of the New Common Equity investment, the New First Lien Debt and/or the New ABL Facility, with Claims arising from the Term DIP Facility to be repaid in full in cash on the Effective Date;
2. the entry into the $50 million ABL DIP Facility, which will be refinanced with the proceeds of the New ABL Facility, with any Claims arising from the ABL DIP Facility to be repaid in full in cash on the Effective Date;
3. the entry, upon emergence from the Chapter 11 Cases, into the $375 million New ABL Facility;
4. the issuance, upon emergence from the Chapter 11 Cases, of the $335 million New First Lien Debt;
5. the issuance, upon emergence from the Chapter 11 Cases, of $160 million in New Preferred Equity to satisfy, along with an aggregate $450 million cash distribution, Secured Notes Claims (whose holders may further elect to participate in a “cash out” option for up to $30 million of their New Preferred Equity);
6. the issuance, upon emergence from the Chapter 11 Cases, of $2 million in New Junior Preferred Equity to the holders of prepetition Unsecured Notes;
7. the $165 million New Common Equity investment by the Investor Support Parties (subject to reduction following a Triggering Event to no less than $150 million pursuant to Section 11(g) of the Restructuring Support Agreement) in exchange for: (a) 100% of the common equity of the Reorganized Company, to be issued upon emergence from the Chapter 11 Cases and subject to dilution by a new management incentive plan, new warrants and all subsequent issuances of common equity; and (b) Warrants to purchase New Common Equity;
8. the satisfaction of Prepetition ABL Claims by the Effective Date;
9. the satisfaction of Superpriority Secured Notes Claims by the Effective date; and 
10. the unimpairment of General Unsecured Claims.

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below)

• Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Total projected claims are <$1.0mn and projected recovery is 100%. Each holder of an Other Priority Claim that is allowed as of the Effective Date shall receive payment in full in cash.
• Class 2 (“Prepetition ABL Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Total projected claims are $269.0mn and projected recovery is 100%. Each holder of an Allowed Prepetition ABL Claim, to the extent not previously satisfied during the Chapter 11 cases (including from proceeds of the DIP Facilities or by being deemed issued, reissued or otherwise novated to the ABL DIP Facility), shall be paid in full on the Effective Date or as soon as practicable thereafter.
• Class 3 (“Superpriority Secured Notes Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Total projected claims are $42.0mn (principal and interest) and projected recovery is 100%.  Each holder of an Allowed Superpriority Secured Notes Claim shall receive payment in full in cash on the Effective Date or as soon as practicable thereafter.
• Class 4 (“Secured Notes Claims”) is impaired and entitled to vote on the Plan. Total projected claims are $676.0mn and projected recovery is 90%.  Each holder of an Allowed Secured Notes Claim shall receive on the Effective Date (or as soon as practicable thereafter) its Pro Rata share of the Secured Notes Claims Distribution.
• Class 5 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Total projected claims are <$1.0mn and projected recovery is 100%. Each holder of an Other Priority Claim that is allowed as of the Effective Date shall receive payment in full in cash.
• Class 6 (“Unsecured Notes Claims”) is impaired and entitled to vote on the Plan. Total projected claims are $385.1mn and projected recovery is 0.5%.  Each holder of an Allowed Unsecured Notes Claim shall receive its Pro Rata share of the Unsecured Notes Claims Distribution on the Effective Date or as soon as practicable thereafter.
• Class 7 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Total projected claims are $75.0mn and projected recovery is 100%. Each holder of an Other Priority Claim that is allowed as of the Effective Date shall receive payment in full in Cash.
• Class 8 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Total projected claims are N/A and projected recovery is N/A.
• Class 9 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Total projected claims are N/A and projected recovery is N/A.
• Class 10 (“Existing Common Equity”) is impaired, deemed to reject and not entitled to vote on the Plan. On the Effective Date, all Existing Common Equity shall be cancelled and no holder of any Existing Common Equity shall receive any distribution nor retain any property or other value on account of such Interests.

Voting Results

On December 15, 2020, the claims agent notified the Court of the Plan voting results [Docket No. 272] which were as follows:

• Class 4 (“Secured Notes Claims”): 78 claim holders, representing $474,872,370.07 (or 80.84%) in amount and 64.46% in number, accepted the Plan. 43 claim holders, representing $112,530,000.00  (or 19.16%) in amount and 35.54% in number, rejected the Plan.
• Class 6 (“Unsecured Notes Claims”): 80 claim holders, representing $326,834,632.00 (or 98.73%) in amount and 97.56% in number, accepted the Plan. 2 claim holders, representing $4,202,263.00 (or 1.27%) in amount and 2.44% in number, rejected the Plan.

Events Leading to the Chapter 11 Filing

The Debtors' Disclosure Statement provides: “One driver of the present need to restructure is the Company’s long-dated debt load, which the Company’s current management inherited. However, over several iterations of corporate restructurings and debt refinancings, all conducted out-of-court, the Company nonetheless had engaged in a multi-year effort to deleverage its balance sheet with the support of the Sponsor.

In particular, in April 2014, the Debtors entered into a series of transactions to restructure the debt and equity capitalization of both Holdings and Guitar Center. Among other elements of these transactions, the Sponsor [Ares] agreed to equitize approximately $560.0 million in aggregate amount of unsecured notes of Holdings and Guitar Center it then-held in exchange for convertible preferred stock in Holdings and preferred equity in Guitar Center. In doing so, the Sponsor acquired a majority ownership of the outstanding voting securities of Holdings. In December 2017, the Sponsor increased its ownership by purchasing all other common shares of Holdings, resulting in ownership of substantially all outstanding voting equity in Holdings.

By 2017 and into 2018, the Company faced two strategic challenges: (1) addressing the next maturity wall on its debt and (2) maintaining its positive financial performance stemming from the strategic initiatives described above. In light of the Company’s heavy debt load, the Company’s management determined to finance continued operational growth through additional working capital flexibility. Accordingly, the Company, with the support of the Sponsor, entered into a series of transactions (collectively, the '2018 Refinancing Transactions') aimed at reducing its cash interest obligations while extending maturities to allow the Company to continue to grow its business. The 2018 Refinancing Transactions resulted in, among other things: (A) modifications to the Prepetition ABL Facility, (B) the issuance of $635 million in aggregate principal amount of the Secured Notes and (C) the issuance of the 2018 Cash/PIK Notes and warrants in exchange for substantially all of the Company’s then-outstanding senior unsecured notes due 2020. The 2018 Refinancing Transactions supported the Company’s sustained growth over 10 straight quarters up until the COVID-19 pandemic.

However, the 2018 Refinancing Transactions, while allowing the Company’s management to execute effectively on its goals, the Company remained highly levered (the 2018 Refinancing Transactions did not reduce the Company’s funded debt obligations) and, in fact, increased its effective interest rate, particularly with respect to the paid-in-kind notes. As a result, the Debtors suffered consolidated net losses of $42.8 million and $61.9 million in the 2018 and 2019 fiscal years, respectively. Because of the positive trends underlying the operations of the Company’s business, these pitfalls were nonetheless sustainable in predictable circumstances and fit in with management’s operational expectations.

The onset of the COVID-19 pandemic upset the delicate balance between servicing the Company’s longstanding heavy debt burden and continuing to finance its long-term growth initiatives. In light of these unexpected challenges, the Company engaged in a series of transactions over the course of May through July 2020 with their principal debtholders to receive short-term accommodations and to finance upcoming interest and maturity payments (collectively, the '2020 Refinancing Transactions').

In a multi-pronged process, the Company: (A) exchanged a substantial majority of the 2018 Unsecured Cash/PIK Notes for 2020 Unsecured Cash/PIK Notes, resulting in the effective deferral of a significant portion of the cash portion of the interest payments due on the 2018 Unsecured Cash/PIK Notes on April 15, 2020; (B) issued the Superpriority Secured Notes4 to certain Secured Noteholders, the net proceeds of which were used to fund the April 15, 2020, cash interest payment due on the Secured Notes and related fees and expenses of the 2020 Refinancing Transactions; and (C) exchanged a majority of the remaining then-outstanding senior unsecured notes that matured on April 15, 2020 for additional Secured Notes, and repaid the remaining un-exchanged senior unsecured notes due 2020 in cash.

Although the Debtors achieved some additional near-term liquidity relief as a result of the 2020 Refinancing Transactions, the business remained highly leveraged and continued to face the challenges caused by the COVID-19 pandemic.

Until the COVID-19 worldwide pandemic struck, requiring Guitar Center to close nearly 100% of its retail operations, the Debtors’ business had been on extraordinarily sound footing. This is a testament to the strategic initiatives put in place by management prior to the onset of the pandemic and the difficult, but necessary, cost-saving initiatives management implemented to keep the company afloat amidst continuing uncertainty regarding the pandemic and its world-wide impact.

However, the Debtors’ liquidity concerns were dramatically accelerated by the COVID-19 pandemic, the ordered shutdown of non-essential businesses throughout the United States, and the closure of the Debtors’ retail locations, which resulted in a significant decrease to net sales and Adjusted EBITDA during the first quarter and coincided with interest and maturity payments on their debt due in April 2020. In addition, while the Debtors’ e- commerce fulfillment centers largely continued operating during this period, with limited interruptions from closures, retail and e-commerce facility closures collectively had a significant negative impact on the Debtors’ net sales in the first half of 2020.

During this period, the Debtors saw strong online demand partially offset decreases from in-store purchases. Digitally-enabled Guitar Center sales increased 130% and sales from all online brands increased 64% over Q2 of 2019. The Company’s omni-channel and online sales initiatives prepared them well for the shift in online buying caused by the pandemic. The Debtors also adapted by migrating their lessons businesses to an online platform.”

DIP Financing

On December 17, 2020, the Court hearing the Guitar Center cases issued a final order authorizing the Debtors to (i) access $375.0mn in debtor-in-possession (“DIP”) financing and (ii) continue using cash collateral [Docket No. 315]. The court issued an interim DIP financing order on November 23, 2020 [Docket No. 81]. 

All of the requested financing was available with the interim DIP order, with proceeds to be used for working capital, other general corporate purposes and the payment in full in cash of the Prepetition ABL Obligations ($279.0mn), as well as payment of certain other permitted prepetition claims.

The DIP financing was comprised of two facilities: (a) a term DIP facility (the “Term DIP Facility”) and (b) an ABL DIP facility (the “ABL DIP Facility” and together with the Term DIP Facility, the “DIP Facilities”). The Term DIP Facility, provided by the holders of a majority of the Debtors’ Secured Notes and the Superpriority Secured Notes (the “Term DIP Commitment Parties”), consisted of a $325.0mn term loan; and the ABL DIP Facility, provided by the Prepetition ABL Agent, consisted of a $50.0mn ABL facility.

According to the terms of the Debtors' Plan, the Term DIP Facility will be repaid in cash on the Plan's effective date with the proceeds of the "New Common Equity investment, the New [$350.0mn] First Lien Debt and/or the New [$375.0mn] ABL Facility." The ABL DIP Facility will also be repaid in full in cash on the effective date "with the proceeds of the New ABL Facility."

Prepetition Indebtedness

As at filing, the Debtors had outstanding funded debt in the aggregate principal amount of approximately $1,329.8mn under five financing arrangements (one of which is an intercreditor agreement and each described further below). This funded debt includes: (i) $269.0 million in borrowings and approximately $7.6 million of letters of credit under the Debtors' Prepetition ABL Facility, (ii)  $35.7 million of obligations outstanding under the Debtors' 10.000% Senior Secured Superpriority Notes due 2022, (iii) $640.0 million outstanding under the Debtors' 9.500% Senior Secured Notes due 2021, (iv) $5.8 million of obligations outstanding under the Debtors' 2018-issued 13.000% Cash/PIK Notes due 2022 and (v) $379.3 million of obligations outstanding under its 2020-issued 13.000% Cash/PIK Notes due 2022.

• Prepetition ABL Facility: The Debtors are party to November 2014 asset-based revolving credit agreement (the “Prepetition ABL Facility”) with Wells Fargo Bank, National Association, as agent (the “Prepetition ABL Agent”), The Prepetition ABL Facility provided for a senior secured revolving credit facility, with a maximum availability of $375.0 million, subject to a borrowing base (and as reduced by the level of outstanding letters of credit). As of November 19, 2020, approximately $269.0 million in borrowings and approximately $7.6 million of letters of credit were outstanding under the Prepetition ABL Facility.

The obligations of the borrowers and guarantors under the Prepetition ABL Facility are secured by (a) a first- priority lien on the Debtors’ inventory, accounts receivable, cash and deposit accounts, and proceeds of the foregoing (the “Prepetition ABL Priority Collateral”), and (b) a third-priority lien on the Debtors’ capital stock, intellectual property, and other assets that do not constitute Prepetition ABL Priority Collateral and proceeds of the foregoing (the “Prepetition Notes Priority Collateral”), in each case, subject to certain permitted liens and exceptions.

• Superpriority Secured Notes: Further to a May 2020 indenture (The Bank of New York Mellon Trust Company, N.A., as trustee and collateral agent”) between Guitar Center, as issuer, the other Debtors, as guarantors, Guitar Center has an aggregate principal amount of approximately $35.7 million of obligations outstanding under its 10.000% Senior Secured Superpriority Notes due 2022 (the “Superpriority Secured Notes”). The Superpriority Secured Notes are subject to a Repayment Premium of 17.50% of the aggregate principal amount of Superpriority Secured Notes redeemed, accelerated (including upon the occurrence of a bankruptcy or insolvency event) or otherwise repaid.

The obligations under the Superpriority Secured Notes are secured by (a) a first-priority lien on the Prepetition Notes Priority Collateral, (b) a second-priority lien on the ABL Priority Collateral, in each case, subject to certain permitted liens and exceptions, and (c) generally, as between the Superpriority Secured Notes and the Prepetition Senior Secured Notes (as defined below), first priority liens on and security interests in all “Shared Collateral,” as defined in the Notes Intercreditor Agreement (as defined below), in which the agent for the Superpriority Secured Notes and the agent for the Secured Notes both hold security interests.

• Secured Notes: Further to a March 2018 indenture (The Bank of New York Mellon Trust Company, N.A., as trustee and collateral agent, Guitar Center has an aggregate principal amount of approximately $640.0 million outstanding under its 9.500% Senior Secured Notes due 2021 (the “Secured Notes”). 

The obligations under the Secured Notes are secured by (a) a third-priority lien on the Prepetition ABL Priority Collateral, (b) a second-priority lien on the Prepetition Notes Priority Collateral, in each case, subject to certain permitted liens and exceptions and (c) generally, as between the Superpriority Secured Notes and the Prepetition Senior Secured Notes, second priority liens on and security interests in all “Shared Collateral,” as defined in the Notes Intercreditor Agreement, in which the agent for the Superpriority Secured Notes and the agent for the Secured Notes both hold security interests.

• Prepetition Intercreditor Agreements: The Prepetition ABL Agent, the Superpriority Secured Notes Trustee, and the Secured Notes Trustee are parties to an amended and restated intercreditor agreement, dated May 15, 2020, (the “Secured Parties’ Intercreditor Agreement”), acknowledged by the Debtors, which governs: (1) the relative lien priorities of the secured parties with respect to the Prepetition ABL Facility, the Superpriority Secured Notes, and the Secured Notes; (2) the rights of the respective secured parties to take enforcement actions against collateral; and (3) waivers of certain rights of certain of the secured parties with respect to, among other things: (a) the provision of debtor-in-possession financing to the Debtors; (b) the ability to seek adequate protection under the Bankruptcy Code; and (c) the ability to contest certain asset sales in a bankruptcy case.

In addition, the Superpriority Secured Notes Trustee and the Secured Notes Trustee are also parties to the Intercreditor Agreement, dated May 15, 2020 (the “Notes Intercreditor Agreement” and, together with the Secured Parties’ Intercreditor Agreement, the “Intercreditor Agreements”), acknowledged by the Debtors, which contain provisions setting forth, among other things: (1) the relative lien priorities as between the Superpriority Secured Notes and the Secured Notes; (2) the rights of the parties to take enforcement actions against collateral; and (3) waivers of certain rights of certain parties with respect to, among other things: (a) the provision of debtor-in-possession financing to the Debtors; (b) the ability to seek adequate protection under the Bankruptcy Code; and (c) the ability to contest certain asset sales in a bankruptcy case.

• Unsecured Notes: Further to an April 2018 indenture (The Bank of New York Mellon Trust Company, N.A. as trustee), Guitar Center has an aggregate principal amount of approximately $5.8 million of obligations outstanding under its 2018-issued 13.000% Cash/PIK Notes due 2022 (the “2018 Unsecured Cash/PIK Notes”). On May 15, 2020, the indenture governing the 2018 Unsecured Cash/PIK Notes was amended by a supplemental indenture that, among other things, released each of the subsidiary guarantees of the 2018 Unsecured Cash/PIK Notes and eliminated or modified substantially all of the restrictive covenants with respect to the 2018 Unsecured Cash/PIK Notes. Accordingly, as of the date of this Disclosure Statement, the 2018 Unsecured Cash/PIK Notes were solely the unsecured obligations of Guitar Center, and were not guaranteed by any other Debtors.

In addition, further to a May 2020 indenture (Wilmington Savings Fund Society FSB, as trustee; having replaced The Bank of New York Mellon Trust Company, N.A.), Guitar Center has an aggregate principal amount of approximately $379.3 million of obligations outstanding under its 2020-issued 13.000% Cash/PIK Notes due 2022 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2020 Unsecured Cash/PIK Notes”, and together with the 2018 Cash/PIK Notes, the “Unsecured Notes”). The 2020 Unsecured Cash/PIK Notes were issued in a series of exchanges for approximately $354.2 million in aggregate principal amount of 2018 Unsecured Cash/PIK Notes in the 2020 Refinancing Transactions.

On July 7, 2020, holders of more than 50% in aggregate amount of the then-outstanding 2020 Unsecured Cash/PIK Notes removed The Bank of New York Mellon Trust Company, N.A. as trustee of the 2020 Unsecured Cash/PIK Notes and appointed Wilmington Savings Fund Society FSB as successor trustee (in such capacity, the “2020 Unsecured Notes Trustee”) of the 2020 Unsecured Cash/PIK Notes.

Key Documents

The following documents were attached to the Disclosure Statement [Docket No. 15]:

• Exhibit A: Plan
• Exhibit B: Restructuring Support Agreement
• Exhibit C: Corporate Structure Chart
• Exhibit D: Financial Projections
• Exhibit E: Liquidation Analysis

The Debtors’ filed Plan Supplements at Docket Nos. 183, 227, 280 and 329 which attached the following documents:

• Exhibit A: New Corporate Governance Documents
• Exhibit A-1: Certificate of Incorporation [Docket No. 329]
• Exhibit A-2: By-Laws
• Exhibit A-3: Stockholders Agreement
• Exhibit B: Certificate of Designations of Series A Preferred Stock
• Exhibit C: Certificate of Designations of Series B Preferred Stock
• Exhibit D: Warrant Agreement
• Exhibit E New ABL Agreement [Docket No. 227]
• Exhibit F: New First Lien Debt Description of Notes
• Exhibit G: Schedule of Rejected Contracts
• Exhibit G-1: Schedule of Rejected Contracts
• Exhibit G-2: Blackline Schedule of Rejected Contracts
• Exhibit H: List of Officers and Directors [Docket No. 280]
• Exhibit I: Restructuring Transactions  [Docket No. 329]
• Exhibit J: Retained Causes of Action

Liquidation Analysis (see Exhibit E to Disclosure Statement for notes)

About the Debtors

According to the Debtors: “The Debtors operate two business segments: the “Guitar Center” and “Music & Arts” business. In total, the Debtors’ operate over 510 stores and employ approximately 13,000 people.

The Guitar Center segment offers new, used and vintage guitars, amplifiers, percussion instruments, keyboards, live sound, DJ, and recording equipment through retail stores and online, along with lessons, repair services, and instrument rentals offered in the Debtors’ stores. The Guitar Center segment also includes Guitar Center Professional, AVDG, “Musician’s Friend”, and “Music 123” branded website. As of the date of this Disclosure Statement, the Debtors operate 296 Guitar Center stores across the United States, as well as the guitarcenter.com website.

The Music & Arts segment specializes in rentals and sales of band and orchestra music equipment to students, parents, schools and educators. Most of the Debtors’ Music & Arts stores provide music lessons and also sell a limited assortment of guitars, amplifiers, percussion instruments, and keyboards. The Music & Arts segment also includes the Woodwind and Brasswind e-commerce and catalogue business that specializes in sales of band and orchestra instruments. As of the date of this Disclosure Statement, the Debtors’ Music & Arts business operates 229 stores across the United States, as well as the musicarts.com and wwbw.com branded websites.

The Debtors operated as a public company until October 2007 when entities substantially owned by affiliates of Bain Capital Partners, LLC (“Bain Capital”) and a co-investor acquired ownership of the Debtors. In 2014, the Debtors undertook a series of transactions to restructure their capitalization. As part of this recapitalization, Ares— which held certain of the Debtors’ notes at the time—acquired majority ownership of the outstanding voting securities. Then in December 2017, Ares purchased all of the common shares owned by Bain Capital and its co-investor. Ares is now the owner of substantially all of the outstanding voting equity.

Corporate Structure Chart

 

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