S&P Global Downgrades Guitar Center Ratings Deeper Into Junk

By Ciara Linnane Markets MarketWatch Pulse

S&P Global downgraded Guitar Center's rating to CCC-plus from B-minus on Wednesday and said the company has underperformed its expectations. The biggest retailer of musical instruments in the world is unlikely to improve its credit metrics meaningfully ahead of early 2019 debt maturities and its capital structure is unsustainable given thin EBITDA interest coverage, high leverage and weak cash flow, the agency said in a statement. The outlook is negative, meaning S&P could downgrade the rating again in the medium term. "The downgrade reflects our view that strategic operating initiatives will be insufficient to meaningfully improve revenue and profits ahead of looming sizable debt maturities in early 2019, especially in light of a challenging retail environment that we expect to continue," said credit analyst Samantha Stone. The company has $615 million of 6.5% notes that mature in April of 2019, that were last trading at 83 cents on the dollar, according to MarketAxess. Guitar Center has a total debt burden of $1.6 billion, taken on as part of an $2.1 billion LBO by Mitt Romney's former private-equity firm Bain Capital in 2007. Moody's Investors Service earlier this month revised the outlook on its B2 rating on the retailer to negative.

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