Gibson Guitar Has 150 Days Until Bankruptcy — and a Brewing Internal War

Amidst looming bankruptcy, Gibson Guitar’s CEO is facing an ugly battle against angry creditors. Those creditors are reportedly pushing a restructuring plan that would keep the company afloat, but remove the CEO and key leadership.

As the financial situation surrounding Gibson Guitar deteriorates, activist creditors are now taking matters into their own hands. The result could be the heads of chairman and CEO Henry Juszkiewicz and top executives like CFO Benson Woo.

Just last week, we learned that Gibson was struggling to meet its obligations on $375 million in senior secured notes due July 23rd of this year. According to multiple analysts and investors, the default risk considered high — with bankruptcy a likely outcome.

+ Gibson Guitar Faces Imminent Bankruptcy After 116 Years In Business

Gibson quickly downplayed those concerns, while pointing to a manageable debt pile. But a separate report in Bloomberg this week suggests that holders of the $375 million debt tranche are pushing for new leadership at the company — or threatening to drive the company into bankruptcy.

That could be part of a strategic takeover play, with Juszkiewicz alluding to suspect ‘intentions’.

The bondholder group controls more than two-thirds of the outstanding bonds, according to Bloomberg. That means serious leverage, and enough to force Gibson Guitar’s chairman and CEO to make serious changes — including the elimination of himself.

Benson Woo, who recently returned as CFO of Gibson Brands, would also be eliminated in the proposed restructuring.

Juszkiewicz has reportedly pushed back, refusing to relinquish his position and moving to secure separate loans.

Those loans could be used to pay down the $375 million bond pile, thereby eliminating the mutiny entirely. But whether Gibson could properly secure a $400 million-plus loan is highly questionable. “Credit analysts have raised doubts that the company can repay borrowings coming due as soon as July,” Bloomberg noted.

The bondholders are similarly dour on the prospects. “The holders don’t expect Gibson’s earnings will be strong enough to attract new money for a refinancing to head off a default looming later this year, and creditors are reluctant to invest more funds while Juszkiewicz is still in charge…”

All of which introduces the worst case scenario: a full-blown default on July 23rd, 2018.

That’s roughly 150 days from now, and a dead serious deadline. But missing the payoff is just one potential problem: according to more details surfacing this week, a bond default would trigger a separate, ‘springing lien’ of $185 million if the original note isn’t paid off.

The next chapters in that story would probably start with the number ’11’.