“The outlook revision considers Moody’s view that GCI, similar to other retailers, will continue to be challenged with respect to improving its consolidated revenue and earnings performance,” said Keith Foley, a senior vice president at Moody’s.
Bonds issued by Guitar Center currently sit at record lows due to growing concerns related to the organization’s $1 billion (give or take) of outstanding bond debt, part of a total debt burden that amounts to roughly $1.6 billion.
GC’s lease-adjusted debt-to-EBITDA coverage for 2016 was about 6.3 times, which is precariously near 7.0 times that Moody’s believes would trigger a downgrade.
Additionally, the company has $615 million of 6.5% notes that mature in April of 2019, which Moody’s rates at B2. According to MarketAxess, those notes traded last at 83.25 cents on the dollar.
An additional $325 million of 9.625% notes mature in April of 2020, which carry a lower rating from Moody’s of Caa1, or seven notches into junk territory. Those notes last traded at 58.10 cents on the dollar, again according to MarketAxess.
“From strictly a quantitative perspective, ratings could be lowered if lease-adjusted debt/EBITDA increases to at/near 7.0 times or EBIT/interest drops below 1.0 time,” said Foley.
