Gibson files Bankruptcy : a new deal of renewing business

Guitarist Magazine  Getty Images

Guitarist Magazine Getty Images

Reportedly $500 million in debt, the Gibson guitar company has filed for Chapter 11 bankruptcy protection in the US.

Gibson Brands Inc.'s CEO said the bankruptcy reorganization the guitar maker filed for on Tuesday will be "virtually invisible" to customers.

While filing for bankruptcy is hardly on any business's bucket list, this restructuring deal seems to be a best-case scenario for Gibson's customers.

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"The decision to re-focus on our core business, musical instruments, combined with the significant support from our noteholders, we believe will assure the company's long-term stability and financial health", Juszkiewicz said in a statement, according to The Wall Street Journal.

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Now, however, the Nashville-based company, founded in 1894, has reported that in addition to filing for bankruptcy, it will also be closing the Philips branch of the company that manufactures headphones and other electronic equipment.

The company's Gibson Innovations business, which is largely outside of the US and independent of the musical instruments business, will be wound down. The unit will be wound down, according to a Gibson news release.

The non-core brands essentially means everything outside of their line of guitars, including the home audio business that Gibson acquired from Phillips back in 2014 to the tune of $135 million. But the purchases drained cash, and earnings plunged.

Management, creditors and consumers alike see strong potential for Gibson's iconic music business. Gibson had also developed a broken relationship with some retailers, a number of whom have stopped selling the brand, citing unmanageable demands that range from annual credit checks to upfront orders for a year's merchandise.

Fox described the electronics business as having become "trapped in a vicious cycle in which it lacked the liquidity to buy inventory and drive sales". The restructuring will also allow the instrument business to "unburden" itself of this struggling portion of their business, which the company hopes will help them get back to their core musical instrument business. The decline in the company's fortunes is said to be linked to the failure of its consumer electronics business overseas, which has sustained serious losses over a substantial period of time.

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