Gibson Guitars Almost Set To Emerge Out Of Bankruptcy

If one brand is synonymous with the evolution of Rock n Roll and all the other genres that have followed, it’s Gibson. Right from the legendary Les Paul made by the man himself, the Gibson Les Paul was the first popular solid body guitar in existence. I’m sure you’ve seen a Gibson in your time. Still curious? Gibson’s have been played by the likes of Jimmy Page, Slash, Joe Bannamasa, Joe Perry, Zakk Wylde, B.B. King, Metallica, Angus Young, Ace Frehley, Tonni Iommi – the list goes on and on. The Les Paul and Gibson have become directly linked to rockstar success and legend, but it seems like the modern era has not faired well with the company. In shocking news, they filed for Chapter 11 Bankruptcy in May. Although recent reports were coming in that Gibson was facing issues, no one had any idea it was this bad. According to the paperwork filed in the U.S. Bankruptcy Court in Delaware last week, a broad-reaching agreement involving various creditors looks close to being sealed.  If the complex deal is approved by all sides, a restructured Gibson Guitar will have another shot at life. The latest filing represents the fourth revision to a working agreement, with approvals potentially coming in a matter of days.  The ‘Fourth Amended Joint Chapter 11 Plan of Reorganization’ can be found here. As part of the deal, chief creditors like Blackstone and Philips Electronics would accept reduced paybacks on their outstanding loans.  Specifically, Blackstone unit GSO Capital Partners would be paid $30 million, while Philips would accept a payout of $57.2 million. Henry Juszkiewicz, the ousted CEO and a previous owner, would assume a seriously reduced role in the restructured entity. Specifically, Juszkiewicz would embark on a permanent leave and lose most of his equity in the company. Accordingly, Gibson would “delegate all responsibility and functions as chief executive officer” to a brand-new Chief Restructuring Officer, Brian Fox, who actually works for turnaround specialist Alvarez & Marsal.  Gibson, under newly-restructured management, would also hire other outside consultants to complement Fox’s role. Additionally, Juszkiewicz would realize a sharply-reduced gain from the expected sale of Japanese electronics division TEAC.  Previously, Juszkiewicz was in line to receive approximately $1.5 million from the expected sale price of $50 million.  Under the new plan, Juszkiewicz would receive approximately $650,000. There’s another key player here: David Berryman, who was also one of the principal pre-bankruptcy owners.  In the new plan, Berryman and Juszkiewicz would collectively own less than 3.5% of the company.  Juszkiewicz, in turn, would have no role in the company unless the company specifically called upon him.

Here’s the applicable language in the agreement:

The Supporting Principals have agreed that the Management Employment and Consulting Agreements shall be drafted such that (a) the aggregate amount of New Common Stock to be received upon exercise of the New Warrants received by Messrs. Juszkiewicz and Berryman under such agreements shall be reduced from 4.5% to 3.45%; and (b) Mr. Juszkiewicz shall receive $650,000 and not $1,500,000 of Profits Interests under such agreement otherwise consistent with the Restructuring Support Agreement;

Sounds like a demoralizing stripping of responsibility, though Juszkiewicz would still earn a full salary plus benefits.  We’re not sure if there are any non-competes tossed into this mix. The updated terms are still not approved, and stakeholders still have the next few weeks to approve the plan.  This is the fourth revision to an ongoing negotiation, though the continued changes suggest that an agreement is getting close.

You can see the entire filing here.