Gibson owes suppliers, other creditors more than $11M
UPDATE: May 3, 2018: This story was updated to include insight and analysis from RapidRatings Senior Associate Libby Thomas.
- Gibson Brands, which designed guitars for B.B. King, Chuck Berry and Elvis Presley, filed for Chapter 11 bankruptcy Tuesday but will stay in business with leadership transferring from CEO Henry Juszkiecwiz (who owns 36% of the company) to noteholders, according to the filing.
- Gibson owes more than $11 million to its top 30 creditors, many of whom are suppliers. Taiwan electronics manufacturer Evervictory Electronic is its top creditor, to whom Gibson owes almost $3 million alone.
- Gibson is approved for a $135 million loan to get its operations back under control, but it is unclear when or how suppliers will be repaid.
In 2016, Moody's downgraded Gibson's credit rating from a Caa1 to a Caa2 after discovering the company owed $80 million to one unnamed electronics supplier and had racked up $45 million in outstanding short-term debt. Lacking the name of said electronics supplier, it is unclear as to whether Gibson has already repaid this obligation in part or in full.
Regardless, Gibson's bankruptcy doesn't necessarily spell bad news for all its suppliers: while guitar sales overall have gradually declined over the years, Gibson's guitar sales were starting to improve. The persisting problem lies in poor quality control and managing multiple brands that haven't served the company's financial interests.
"[Fender's] wherewithal to handle market challenges outside the pressure of the public eye is a stark contrast to Gibson’s unfortunate woes over its attempts to diversify with consumer electronics," Libby Thomas, senior associate for RapidRatings, told Supply Chain Dive in an email. "The musical instrument and accessories space in particular has been volatile for the last several years, though, so only time will tell what the future holds for other big players in the industry."
Gibson's restructuring doesn't spell doom for the guitar or musical instrument industry as a whole, but it does reveal an inability to accurately gauge and meet consumer expectations.
"Gibson’s bankruptcy is reflective of many of the same challenges other legacy brands face in today’s marketplace," Thomas said. "With e-commerce driving prices down, consumer habits constantly evolving, and technology changing the way people engage with music, it’s been a difficult environment."
Now there's an opportunity to address those problems and restore the brand's reputation. According to the press release accompanying the bankruptcy filing, Juszkiecwiz said the company will "focus on our core brand, musical instruments," also mentioning the company had been selling off "non-core brands" over the past year.
Suppliers serving Gibson's "non-core brands" — which could include its consumer electronics business and music software subsidiary Cakewalk — could be left in the lurch as Gibson restructures. That said, it is unclear how Gibson will streamline its operations. If anything, the restructuring is a test for supplier resiliency and a warning to other suppliers serving struggling companies in the musical instrument business.
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