Guitar Center, the largest U.S. retailer of musical instruments, filed for bankruptcy protection late Saturday.
The company, which was struggling to compete against online rivals even before the pandemic, was hit hard when it was forced to temporarily close most of its stores earlier this year.
It entered Chapter 11 restructuring proceedings in the U.S. Bankruptcy Court of the Eastern District of Virginia. It will continue to pay its vendors and employees in full, it said in a news release.
Guitar Center said it had struck an agreement with its creditors in support of a plan that would reduce its roughly $1.3 billion in debt by $800 million. To help support its bankruptcy, it said it had secured new financing from investors that include a fund managed by its owner, the private equity firm Ares Management Corp., as well as funds managed by the hedge fund Brigade Capital Management and the Carlyle Group, a private equity firm.
The company said it expected to emerge from bankruptcy by the end of the year.
Guitar Center's bankruptcy is the latest example of how the coronavirus pandemic has divided U.S. retail into two groups, with a growing gap between the strongest and weakest companies. Although many people turned to hobbies like playing music while homebound, the beneficiaries of that surge in demand have primarily been businesses with strong e-commerce infrastructure.
Even before the pandemic, Guitar Center's business was threatened by online rivals, and the company was heavily indebted as a result of a private equity-led buyout years earlier. Still, it said in a court filing, it had posted 10 consecutive quarters of sales growth through the end of February. It said the pandemic "wiped out much" of that progress.
Guitar Center's origins date to 1959. The next few decades brought expansion and, in 1997, an initial public stock offering. The company was acquired by Bain Capital in 2007 for $1.9 billion. But like many such deals, the buyout left Guitar Center heavily in debt and it never fully recovered.