Gibson Files for Chapter 11 Bankruptcy, Refocuses On Its Pro Musician Business

Gibson Brands, the maker of world famous Gibson guitars, filed for Chapter 11 bankruptcy in a Delaware court on Tuesday. 

The move brings to end months of speculation about the company’s financial health after Gibson began efforts to refinance the crushing debt used to acquire consumer electronics brands. 

The pre-negotiated organization plan allows for chairman and chief executive Henry Juszkiewicz and David Berryman, Gibson’s president, to continue with Gibson once the company exits Chapter 11. Citing court filings, Bloomberg reported the plan gives Juszkiewicz a one-year consulting deal and compensation package. 

Most importantly to the music industry, the restructuring plan allows Gibson to continue manufacturing Gibson and Epiphone guitars as well as KRK and Cerwin Vega studio monitors and loudspeakers throughout the process. Again citing court filings, Bloomberg says Gibson will be given a new loan “of up to $135 million” to maintain operations. The company’s lenders now own the company, however. 

Tuesday’s announcement could have been foreseen months ago. 

August 2017, Moody’s downgraded Gibson’s already poor credit rating due to its “unsustainable” capital structure and doubts the company could refinance $375 million notes before its Aug. 1 maturity. 

Gibson issued a press release on Feb. 15 to announce its efforts to refinance the debt. Instead, Gibson has secured $135 million in debtor-in-possession financing— Gibson maintains ownership of the company—to get the company through Chapter 11 proceedings that are expected to conclude in September. 

Much of Gibson’s problems can be attributed to its errant strategy to borrow money to acquire consumer electronics companies—Onkyo, Teac, Pioneer, and the Philips brand of audio and home entertainment products—and transform the music-oriented company into a broader entertainment technology company. 

The strategy failed, however. Needing money to fund its core businesses, on April 30 Gibson began liquidating the consumer electronics business it acquired from Philips, according to Reuters.