Guitar Center reduces debt, interest expense

Los Angeles -- Guitar Center's total debt has been reduced by approximately $500 million and annual cash interest expense has been reduced by more than $70 million. The improved financial position of the company will enable Guitar Center's management team to further invest in its people, store base and brands to accelerate growth.



As part of the transactions, affiliates of the Private Equity Group of Ares Management exchanged a portion of their holdings of Guitar Center's debt into preferred stock and assumed a controlling interest in the company. Affiliates of Bain Capital retained partial ownership of the company, along with representation on the board of directors.



Concurrently with the partial debt-to-equity exchange, Guitar Center completed a refinancing of its remaining indebtedness with proceeds from new senior secured notes, senior unsecured notes, and a new revolving credit facility. Aside from carrying a lower interest burden, the company's new debt structure provides for substantially more flexibility and improved credit terms over the next five years.



"These transactions significantly enhance Guitar Center's financial position. On a cash flow basis, we expect to save more than $70 million a year in cash interest expense,” said Tim Martin, CFO, Guitar Center. “In addition, the removal of the restrictive term loan covenant and extension of the maturity dates of our facilities provides us with financial flexibility to execute our strategic plan and to grow the business."



Proskauer Rose LLP acted as legal advisor to Ares. Kirkland & Ellis LLP acted as legal advisor to Bain Capital and to Guitar Center. BofA Merrill Lynch, Deutsche Bank Securities, J.P. Morgan and RBC Capital Markets acted as joint bookrunners on the new Secured and Unsecured Notes. Wells Fargo Capital Finance and Bank of America Merrill Lynch acted as joint lead arrangers on the new revolving credit facility.