Debt Holders Increasingly Anticipate Bankruptcy Filing
Gibson Brands announced at the end of last week that it had successfully completed a $16.6 million coupon payment to holders of its $375 million 8.875% senior secured notes due 2018. This news, a seemingly positive development for the company, really only means that they get to march forward towards their mid-year debt maturities – the big event. But, for the moment at least, they are stayin’ alive.
However, Gibson’s CFO has left the company…
As long time readers know, Strata-gee has followed the Gibson Brands story fairly closely since 2012, so the announcement last week that the company had completed this large coupon payment definitely caught my attention. Certainly, it was a good thing to make this interest payment to the debt holders, a move that at least buys the company some more time.
But at the same time, other more troubling news has emerged that Bill Lawrence, Gibson’s Chief Financial Officer, left the company at the end of January. Turnover in Gibson’s CFO position was cited by Moody’s Investors Service as a notable factor they considered when issuing a credit rating downgrade in 2016. Coming at this time, the departure of the CFO can’t be a good sign.
Vendors Cutting Terms and Shipments
Distressed debt industry newsletter Reorg Research, in a report on Gibson, shed some light on just how dire the situation has become at the company. In the report, Gibson Continues to Seek Completion of Recapitalization Before July as Secured Noteholders Anticipate In-Court Restructuring, reporter Chelsea Frankel offered an amazingly detailed and sobering assessment of the company’s situation. Citing unnamed sources, the report notes “the company’s liquidity has been affected by near-term events such as tightened terms from certain suppliers leading to cuts in shipments to the company.”
In an interview with company CEO Henry Juszkiewicz, he told them, “This was a short-term issue, which is being reconciled as we speak.” The report goes on to note that the company had counted on proceeds from the sale of a Nashville property in their projected January cash flow, but that transaction did not happen. It further noted, as we’ve told Strata-gee readers previously, Gibson is embroiled in litigation now with two lawsuits pending.
Juszkiewicz told them that while the sale of a building in Nashville has been held up, they expect that sale to take place this month. Interestingly, Juszkiewicz added, “In addition, we have made some adjustments that will put us in a much better position than we have been for some months.” He did not clarify what that “adjustment” was.
Seeking a Half-Billion Dollar Package, But Wants Control
Reorg Research notes that Gibson’s advisors, Jefferies, Alvarez & Marsal and Goodwin Proctor, are attempting to restructure Gibson’s debt with a new $550 million package – more than half a billion dollars – of secured first lien financing and secured second lien financing. The report notes that “the recapitalization would give a substantial amount of equity to providers of second lien financing, but Juszkiewicz would maintain majority ownership in the company” according to their sources.
Here’s the kicker, they have further learned “that the company has not informed its creditors of any binding financing commitments for the intended recapitalization since it began to solicit financing in or around early December, but the company and its investment banker Jefferies are continuing to pursue such financing.” Translation, no new players have agreed to join the party.
If Restructuring Fails, Bankruptcy is Inevitable
A source told us that Juszkiewicz’s insistence on maintaining majority ownership is a major stumbling block to potential lenders/investors. If Gibson’s debt restructuring isn’t completed by July, then bankruptcy is inevitable.
Existing Gibson noteholders have retained financial advisors and “anticipate that the company will be unable to recapitalize its debt by July and will face a bankruptcy filing within the year.” Once that happens, the group would likely end up with more equity in the company through the bankruptcy.
Creditors Have Retained Japanese Lawyers
One final interesting note in the Reorg Research report, current Gibson noteholders have retained Japanese legal counsel “to determine whether the notes’ security interests in certain subsidiaries, including TEAC and Onkyo, have been perfected.” It is obvious that any financial holdings of debtor Gibson are valuable assets that could become entangled in a bankruptcy filing, and potentially turned over to the company’s debt holders, depending on the court’s decision. But we found it quite interesting that Gibson’s current noteholders are thinking…and acting…this far ahead.
While Gibson CEO Juszkiewicz still has time to get the recapitalization done, the window of opportunity is beginning to close. Then, things get much worse…
Learn more about Gibson at: www.gibson.com.