Gibson Brands has just had its credit rating downgraded by Moody’s Investor Services. The company had a mixed reception to its whole 2015 range of guitars and this has been taken into account along with a very high turnover of senior financial management.
A credit report announced earlier today has stated that Moody’s Investor Services have downgraded Gibson from B3 to a Caa1. This action results from a review of the company which was started on 22nd December last year. Moody’s result was due to ‘weak operating results pushing credit metrics below Moody’s expectations’.
Moody’s have also warned that the Gibson may struggle to meet its financial obligations. As I understand it this could mean for example that any suppliers that Gibson may use for parts will need paying and Gibson may not have the cash flow to do so.
The report’s ‘Rating Rationale’ read:
‘Gibson’s Caa1 Corporate Family Rating considers its weak liquidity profile, soft credit metrics and the highly discretionary nature of its musical instrument and consumer electronics product lines. Demand for these products was dampened by the deterioration in discretionary consumer spending during the last few years and was exasperated by the poor consumer reception of its 2015 guitar models. The ratings also reflect the company’s high leverage at around 8.5 times and the risks associated with the consumer electronics business.
‘Another key concern is that there continues to be high turnover in the company’s senior financial management level. Gibson’s ratings are supported by the company’s strong brand recognition in musical instruments and market share for guitar products, and diversified product line within guitars and related music areas.’
Gibson have claimed that their new improved 2016 lineup has been very popular and Henry Juszkiewicz has said that they are already experiencing an increase in sales, with the popular new lineup. Henry has also stated that their quarterly results for the end of last year were better than the previous years. At the beginning of December 2015 Moody’s stated that Gibson’s approach to business ‘the riskiest’.