Last week, Gibson Brands issued a business-as-usual statement implying that all is well in luthier land. In truth, the iconic guitar company is perilously close to financial failure. Gibson has moved out of its Nashville offices, and CFO Bill Lawrence stepped down after less than one year on the job. $375 million in secured notes are poised to mature in just a few months, and the company also owes another $145 million in bank loans. Stagnating sales, poor management, and imminent bankruptcy may spell the end of the 116-year old instrument maker, according to the Nashville Post.
Gibson Liquidating Assets
With fewer than six months to go before millions in debt become due, Gibson is selling assets at a furious pace. Last November, Gibson Brands unloaded a piano warehouse at 1102 Grundy Street in Nashville’s Gulch district for nearly $6.4 million, and the company has listed its Valley of the Arts Building for sale. Also, Gibson recently sold the Baldwin Piano Company, according to the Dayton Daily News.
Sale of the Baldwin piano warehouse brought in more than six million dollars. The Valley of the Arts Building is expected to sell for no less than $11 million, but it still won’t be enough to satisfy the former Gibson Guitar Corporation’s massive debt.
Gibson’s Credit Rating Is Tanking Along With Its Reputation
Two years ago, risk analysts at Moody’s Investors Service were so disappointed with the way the Gibson guitar company does business; they downgraded the instrument maker’s credit standing from B3 to Caa1. B3 ratings are considered speculative and a high credit risk. Caa1 rated companies are considered speculative with a very high credit risk, explains NASDAQ.
According to Gear News magazine, Gibson Brands’ credit rating tanked because of “weak operating results” that sank Gibson’s credit metrics below Moody’s expectations. In 2016, Moody’s warned investors and consumers about declining cash flow at Gibson Brands while positing that a downturn in sales might make it difficult for the company to meet its financial obligations.
Gibson’s Reputation Has Been Swirling The Drain For A While
Last October, Q104.3 radio noted “a groundswell of anger directed at the legendary guitar manufacturer” by unhappy consumers and disenchanted endorsers, including Metallica frontman James Hetfield and Mastodon axeman, Bill Kelliher. Both guitarists formerly endorsed Gibson but now tout Japanese axes made by ESP.
Kelliher told Ultimate Guitar that Gibson is a company “on their way downhill” and that Gibson Brands “treats artists like sh*t.”
“They (Gibson) kept f***ing up my guitars that I was asking for. I didn’t ask for a lot – I just had a few certain things that I would like with my guitar – I told them I didn’t want it chambered and they made my second guitar chambered. They weren’t even tuning the guitars to my settings or specifications.”
Les Paul Didn’t Appreciate The Way Gibson Made Guitars In His Name, Either
In American Guitars: An Illustrated History by Tom Wheeler, the inventor of the electric guitar complained about shape and other aspects of the Gibson SG.
“The first one I saw was in a music store, and it said Les Paul on it. I didn’t like the shape — a guy could kill himself on those sharp horns. It was too thin, and they had moved the front pickup away from the fingerboard so they could fit my name in there. The neck was too skinny, and I didn’t like the way it joined the body; there wasn’t enough wood, at least in my opinion. So I called Gibson and told them to take my name off the thing. It wasn’t my design.”
Quality No Longer The Focus Of Gibson
Guitar pros at Gear News blame the imminent bankruptcy of Gibson on robot tuners, super-wide necks, “crayon-like signatures,” and poorly designed instruments such as the Firebird Zero for the downfall of the Gibson guitar company.
“Some Gibson dealers were, it seems, stuck with stock they could not shift, and Gibson further alienated them by discounting these guitars in blow out sales on Amazon, in effect undercutting their own dealers.”
Gibson Is A Horrible Company To Work For, Says Employees
The fact that Gibson is about to go bankrupt comes as little surprise to employees of the legendary guitar maker. Reviews at Glassdoor reveal an atmosphere fraught with tension, employee abuse, and a CEO that manages Gibson through fear and intimidation.
One reviewer identified as a former Gibson executive in Nashville suggests that CEO Henry Juszkiewicz is bipolar and should be medicated:
“Most employees work hard to not be seen by the bipolar CEO. There’s a 50/50 chance they would be fired just when they’re seen…and they all know it. Management by fear and intimidation is the standard operating procedure. 27 different executives left the company in one year…either quit or fired. Insanity.”
Can Gibson Be Saved?
Kevin Cassidy, a senior credit officer at Moody’s Investors Service, explains that the nearly-bankrupt Gibson Brands has a limited number of options. Gibson could renegotiate company debt but would be unlikely to do so at a feasible price. CEO Henry Juszkiewicz could be forced to relinquish equity in exchange for debt payments, or he could file for bankruptcy in Nashville.
“This year is critical and they are running out of time — rapidly. And if this ends in bankruptcy, he will give up the entire company.”
Or, Gibson Might Re-Hire Their Erstwhile CFO
Earlier today, Gibson Brands announced the return of former CFO, Benson Woo. Currently, the director of Teac Corp., Woo served as chief financial officer of the financially strapped guitar maker in 2015, according to the Nashville Post.
“We are excited and pleased that Benson with be coming back to the Gibson Brands family. He has a great knowledge of the industry, our current businesses and is liked and respected by everyone at Gibson and with whom he dealt. We are confident he will contribute to moving the company forward.”
Teac Corp manufactures high-end audio gear in Japan and has been majority-owned by Gibson Brands since 2013. At this point, it is unclear what will happen to Teac and other subsidiaries if Gibson Brands declares bankruptcy.