Guitar Center files for Chapter 11 bankruptcy

BY Richard Summerfield

Guitar Center, the biggest musical instrument retailer in the US, has filed for Chapter 11 bankruptcy as the impact of COVID-19 continues to be felt across the retail sector.

The filing in the Bankruptcy Court of the Eastern District of Virginia will allow Guitar Center and its related brands to continue to operate in the normal course while it restructures. The company said it has liabilities of $1bn to $10bn, with a similar range for its assets, according to the filing.

Under the terms of the company’s restructuring plan, Guitar Center, which has around 300 stores across the US, and its sister brand Music & Arts, which has more than 200 stores specialising in band and orchestral instruments for sale and rent, will reduce their debt by nearly $800m.

Guitar Center has secured up to $165m in new equity investments from its equity sponsor, a fund managed by private equity firm Ares Management Corporation, and new equity investors, which include a fund managed by The Carlyle Group and funds managed by Brigade Capital Management.

Guitar Center has arranged $375m in debtor-in-possession (DIP) financing, which is being provided by a number of its existing noteholders and ABL lenders. In connection with the plan, the company currently intends to raise $335m in new senior secured notes. UBS Investment Bank will serve as the lead placement agent in connection with this effort. Guitar Center expects to emerge from bankruptcy protection before the end of the year.

“This is an important and positive step in our process to significantly reduce our debt and enhance our ability to reinvest in our business to support long-term growth,” said Ron Japinga, chief executive of Guitar Center. “Throughout this process, we will continue to serve our customers and deliver on our mission of putting more music in the world. Given the strong level of support from our lenders and creditors, we expect to complete the process before the end of this year.”

Prior to the outbreak of COVID-19, the company was already under significant financial pressure as competition from online rivals intensified and it struggled to cope with its heavy debt load, a legacy of its leveraged buyouts. The retailer was first acquired by private equity firm Bain Capital. Ares Management then took control in 2014, in a deal aimed at reducing Guitar Center’s debt; despite these efforts, the company continued to carry around $1.3bn worth of debt from the Bain takeover.

News: Guitar Center is filing for bankruptcy

RSA sold in $9.6bn deal

BY Richard Summerfield

British insurance firm RSA has agreed to be sold to Canada’s Intact Financial and Denmark’s Tryg in a $9.55bn cash deal.

The deal has won the unanimous approval of RSA’s directors who recommended the company’s shareholders vote in favour of the offer. The deal is expected to complete in the second quarter of 2021.

Under the terms of the deal, Tryg will pay around £4.2bn while Intact will contribute the remaining £3bn, with the overall offer representing a 51 percent premium to RSA’s 4 November closing share price of 460 pence. RSA shareholders will also receive a preannounced interim dividend of 8p per share, worth about £82m.

The proposed takeover would see RSA’s existing business broken up. Intact would gain RSA’s Canada, UK and international operations while Tryg would take the Sweden and Norway businesses. The consortium would co-own RSA’s Danish unit, though it will be managed by Intact while it explores strategic options for the business, including a sale or stock market flotation.

“The board of RSA is pleased to be recommending Intact and Tryg’s cash offer for the company, which delivers attractive, certain value for shareholders,” said Martin Scicluna, chairman of RSA. “RSA has provided peace of mind to individuals and protected businesses from risk for more than 300 years. However, I am confident that the values of our business, and not least our dedication to serving customers well, will be sustained as part of Intact and Tryg.”

“This acquisition is highly strategic for Intact,” said Charles Brindamour, chief executive of Intact. “It expands our leadership position in Canada, builds on our strong track record in specialty lines, and puts us in a solid position to strengthen RSA’s UK and Ireland operations. We have strong capabilities in data, risk-selection and claims management, which we plan to leverage across the business. I look forward to welcoming RSA’s employees into our company and leveraging their deep expertise across the business. Together, we are stronger and more resilient.”

News: British insurer RSA agrees $9.6 billion takeover by overseas rivals

Natural gas producer Gulfport Energy files for Chapter 11

BY Fraser Tennant

In a bid to reduce its debt by approximately $1.25bn, natural gas and oil company Gulfport Energy Corporation, along with its wholly owned subsidiaries, has filed for Chapter 11 bankruptcy protection in order to implement a restructuring support agreement (RSA).

Attached to the RSA is a pre-negotiated’ restructuring plan that will strengthen Gulfport’s balance sheet, significantly reduce its funded debt, and lower ongoing operational costs. The company also plans to  issue $550m of new senior unsecured notes under the plan to existing unsecured creditors of certain Gulfport subsidiaries.

In addition, Gulfport has secured $262.5m in debtor-in-possession (DIP) financing from its existing lenders under its revolving credit facility, including $105m in new money that will be available upon court approval. The financing is structured to fund Gulfport’s ordinary course operations during the Chapter 11 proceedings, including employee wages and benefits and payments to suppliers and vendors.

Gulfport Energy is one of a growing number of US oil and gas companies that have filed for Chapter 11 bankruptcy protection after the coronavirus (COVID-19) pandemic deepened their struggle with low prices and excessive debt.

“Despite efforts to streamline our business, our large legacy debt burden in addition to significant legacy firm transportation commitments created a balance sheet and cost structure that was unsustainable in the current market environment,” said David M. Wood, president and chief executive of Gulfport Energy. “After working diligently to explore all strategic and financial options available, Gulfport’s board of directors determined that commencing a Chapter 11 process is in the best interest of the company and its stakeholders.”

Headquartered in Oklahoma City and employing 259 people, Gulfport Energy is an independent returns-oriented, gas-weighted, exploration and development company, as well as being one of the largest producers of natural gas in the US.

“We expect to exit the Chapter 11 process with leverage below two times and rapidly deliver thereafter due to a much-improved cost structure driven by reduced legacy firm transport commitments and costs,” continued Mr Wood. “These improvements will significantly improve our ability to generate cash flow and value for our stakeholders going forward.”

Furthermore, Gulfport hopes to safeguard its future with the help of commitment from its existing lenders to provide $580m in exit financing upon emergence from Chapter 11.

Mr Wood concluded: “We hope to move through the restructuring process quickly and efficiently and emerge as a stronger company positioned for future success.”

News: Natural gas producer Gulfport Energy files for bankruptcy

Social bond issuance could approach $100bn in 2020, says new report

BY Fraser Tennant

In response to economic shocks caused by the coronavirus (COVID-19) pandemic, governments, supranationals and corporations have accelerated the issuance of social bonds, according to a report published this week by S&P Global Ratings.  

Issuance of the bonds – defined as use-of-proceeds bonds that raise funds for new and existing projects that address or mitigate a specific social justice issue such as employment, education, housing and healthcare – has risen fourfold so far this year from the 2019 level to $71.9bn.

Furthermore, S&P projects social bond issuance could approach $100bn this year – potentially becoming the fastest-growing segment of the sustainable debt market. Additionally, S&P expects to see an increase in investor interest in social bonds growing across both the public and private sector.

“Economic shocks from the COVID-19 pandemic have widened existing inequities around the world,” said Lori Shapiro, credit ratings analyst at S&P Global Ratings and primary author of the report. “Poorer people, minorities, and women are suffering disproportionately from growing health, housing, income, and education gaps under measures to contain COVID-19 that could set them back for years to come. This has led to calls for greater social justice in dealing with the pandemic.”

Historically, interest in social bonds from investors, governments and companies has been limited, with social bond issuance comprising only 5 percent of all 2019 sustainable bond issuance. However, since the outbreak of COVID-19, structural inequalities have been placed under the spotlight and calls for social justice have intensified.

This increase in demand is likely to be met with greater supply from a wider range of issuers to fund a variety of projects, including access to safe and affordable housing, improvements to public health infrastructure, and employment or income generation.

Ms Shapiro concluded: “Sustainable finance debt, and particularly social bonds, will continue to serve as a tool in the economic fight against COVID-19 and the social inequalities and justice issues that have proliferated as a result.”

News: Sustainable Finance Addresses Social Justice As COVID-19 Raises The Stakes

Traton and Navistar agree $3.7bn deal

BY Richard Summerfield

Traton SE, a subsidiary of Volkswagen Group, has agreed to acquire the remaining stake in Navistar International Corp it does not already own, for $44.50 per share. The deal values the company at around $3.7bn.

The deal, which is expected to close in mid-2021, has been approved by Traton’s executive board and supervisory board. The deal has also been approved by Volkswagen’s board.

Traton, which was established in 2018 after the Volkswagen Group separated its truck and passenger car operations, already owned a 16.8 percent stake in Navistar. The Volkswagen group will provide Traton with a loan of $3.9bn, repayable over 12-18 months, to fund the deal.

“Today’s announcement accelerates our Global Champion Strategy by expanding our reach across key truck markets worldwide, including scale and capabilities to deliver cutting-edge products, technologies and services to our customers,” said Matthias Gründler, chief executive of Traton. “Together, we will have an enhanced ability to meet the demands of new regulations and rapidly developing technologies in connectivity, propulsion and autonomous driving for customers around the world.”

He added: “Navistar has been a valuable partner, and we are confident this combination will deliver compelling strategic and financial benefits, create enhanced opportunities for both Navistar and TRATON, and best position us to drive sustained value in the evolving global commercial vehicle industry.”

“This transaction builds upon our highly collaborative and successful strategic alliance and further enhances the growth trajectory of the combined company, while delivering immediate and substantial value to our shareholders,” said Persio Lisboa, president and chief executive of Navistar. “We look forward to continuing to work with the TRATON team to create opportunities for our employees and provide an outstanding experience for our customers and dealers through best-in-class products, services and technologies.”

The agreement brings to an end a period of uncertainty regarding the future of Navistar. In September, Traton offered $43 per share, but Navistar International’s board of directors rejected the bid on grounds that it significantly undervalued the company. Navistar has since accepted Traton’s sweetened offer, and the company’s largest shareholders, Carl Icahn and MHR Fund Management, have also pledged their support for the deal.

News: Volkswagen truck unit Traton finalises $3.7 billion Navistar acquisition deal