Gibson Brands Hires New COO, Hit With Another Credit Downgrade

Photo of Lee Cheng

Gibson Brands announced Tuesday that it has hired Lee Cheng as its new Chief Operating Officer (COO) and executive vice president. This appointment takes effect immediately and follows a recent additional credit downgrade by the Moody’s Investor Service.

See more on Cheng’s interesting background and the Moody’s downgrade…



According to a report by the Nashville Post, Cheng is an attorney who most recently served as the chief legal officer, senior vice president of corporate development, and corporate secretary of online merchant Newegg.com. During his tenure at Newegg, he was twice named Top 50 general counsel in America by the National Law Journal.

Cheng also served on the Consumer Technology Association Board of Industry Leaders, where he met Gibson CEO Henry Juszkiewicz.

Gibson CEO Impressed

Photo of Henry Juszkiewicz on The Pitch

Gibson CEO Henry Juszkiewicz

Prior to Newegg, Cheng was at Latham & Watkins, an international law firm, and served as general counsel for two venture-funded startups. He is a graduate of Harvard College and the University of California Boalt Hall School of Law.

“I am so impressed with Lee’s talent,” Henry Juszkiewicz, Gibson CEO, said in a prepared statement. “He will be responsible for driving and managing various enterprise-level projects. He will be involved with Gibson Brands on specific projects which will include having direct responsibility for some operations, departments and business lines and divisions.”

In March 2016, we told you about a downgrade of Gibson Brands, Inc. credit rating by Moody’s Investors Service from B3 to CAA1. The CAA1 rating is considered below investment grade, or commonly referred to as “junk” status. The ratings downgrade in March 2016 had quickly followed a previous downgrade in December 2015.

Moody’s Downgrades Gibson Credit for Third Time in a Year



Then, just six weeks ago, Moody’s again dropped Gibson’s credit rating from BAA1 to BAA2. Ironically, this downgrade follows a report by Gibson of a positive performance improvement in June.

Why the further downgrade by Moody’s?

“We expect Gibson’s operating performance to improve this year, but remain below our original expectations,” said Kevin Cassidy, Senior Credit Officer at Moody’s Investors Service.

Uncertainty About Company Projections

Photo of exterior of Gibson's Tokyo Showroom

Gibson Brands showroom in Tokyo, Japan
[Click to enlarge]

The report by Moody’s adds that the “negative outlook reflects uncertainty about the projected improvement in Gibson’s operating performance and the uncertainty about the company’s ability to refinance its ABL revolving credit facility.”

Moody’s analysis is unflinchingly ominous. Saying the downgrade is “due to increasing concerns about the company’s liquidity position.” Also, the report declared, “The rating outlook is negative.”

Rapidly Approaching, Impressively Large Debt Repayments

The heart of the issue is that the company is facing some rapidly approaching and impressively large debt repayments, including “over $80 million due to a consumer electronics supplier” and “$45 million in near-term outstanding indebtedness, if the ABL revolving credit facility is not refinanced.”

Moody’s notes that the ABL (asset based loan) recently saw its expiration date accelerated to May 2017 from its original date of January 2018, “because the company was in violation of a covenant.” However, Moody’s also said that they believe Gibson retains enough assets to be able to effect a restructuring of this amount.

‘High Turnover’ of Gibson CFOs



In this analysis of Gibson’s business, Moody’s noted the company has “high turnover in the company’s senior financial management level.” This factor of revolving CFOs has been mentioned by the credit agency in multiple reports on Gibson.

Gibson Brands (formerly Gibson Guitar) is a Nashville, TN based manufacturer of musical instruments, professional and consumer audio and video products, information products, and accessories. The company entered consumer electronics in 2012 in an effort to diversify its business that was heavily reliant on the struggling musical instrument industry.

Gibson went on a shopping spree buying companies in consumer electronics and pro, leaving them with a stable of brands including: Gibson, Epiphone, Kramer, Baldwin, Philips, Onkyo, KRK, Stanton, Teac, and more. The company has revenues of around $1.6 billion for the year ending June 30, 2016.

See more on Gibson Brands as: www.gibson.com.


About Ted

A sales and marketing specialist – primarily in the technology industry – I’ve experienced a sort of “circle of life” in business. I’ve been a mass merchant retailer, a specialty retailer, a specialty manufacturer, a large volume manufacturer, a distributor, and even represented sales representatives.

Now the owner of a marketing company that works with a variety of businesses on improving their strategic marketing and business development – I analyze issues from all angles to develop holistic solutions.


Comments

Gibson Brands Hires New COO, Hit With Another Credit Downgrade — 3 Comments

    • Hi Bruce,

      That is a fair question as the company went nose-to-nose with the Feds for quite a while…before ultimately settling with them. I don’t know if anyone associated with Gibson will jump in here with an answer or not.

      However, I don’t think even they claim the dalliance with the Feds to be the cause of their current situation. The most likely case: they recently engaged in a dramatic expansion, buying several brands as they chose to diversify into the consumer electronics and pro electronics businesses. This is expensive.

      On top of that, they launched a line of guitars in 2015 for which sales were said to be disastrous. As the guitar market is still the most important part of their business…this had to impact their financials hard…really hard.

      The company launched a new line of guitars this year and have publicly said that this line has been well-received by customers. They have also publicly announced that their financials are starting to show improvement. So we’ll have to see how this all works out.

      Thanks for reading!

      Ted

  1. Thanks for the article. Note that Gibson’s CEO (Henry Juszkiewicz) has the lowest rating I’ve been able to find on Glassdoor.com. Just 5% of Gibson’s employees approve of Juszkiewicz. The next lowest approval rating I’ve been able to find is about 20%, which gives you some idea of just how poorly Juszkiewicz is rated by his own employees. I personally believe this is much of the root of the problem at Gibson brands.

Comment on this Post

Your email address will not be published. Required fields are marked *

PLEASE READ OUR **COMMENT POLICY** BEFORE POSTING A COMMENT

We welcome your comments and encourage you to participate by offering your insights and thoughts on our posted stories. However, in some instances, your comment may be subject to editing or deletion if they violate one or more of the following points.

    --First, while we support vigorous debate and are generally quite tolerant of even controversial thoughts and ideas - we do not tolerate rudeness, profanity, or personal attacks.
    --Second, please stay on topic with your thoughts.
    --Third, while links to relevant content are OK, we do not allow self-promotion or SPAM.

The owner of this site reserves the right to edit or delete any comments submitted to this site without notice. This comment policy is subject to change at any time.