Guitar Center pulls $750M notes sale

Guitar Center Inc., the largest U.S. musical instrument retailer, pulled its sale of $750 million of notes last Tuesday, according to KDP Investment Advisors Inc.
Guitar Center had planned to sell equal amounts of eight-year senior notes and 8.5-year pay-in-kind holding company notes to finance its leveraged buyout by Bain Capital Partners LLC. The offering is the biggest U.S. corporate high-yield bond transaction to be withdrawn since July, when credit markets seized up amid rising subprime mortgage defaults.
“Investors just didn’t have an appetite for this deal,” said John Lahman, a retail analyst at KDP in Montpelier, Vt. Guitar Center “didn’t push a compelling enough story.”
Investors balked because Guitar Center’s management didn’t show how the Westlake Village, Calif.-based company planned to increase cash flow enough to pay down the debt at maturity, Lahman said. The bonds also lacked asset coverage, he said.
The risk of U.S. companies defaulting on their debt has risen to the highest since August, according to traders of credit- default swaps.
Guitar Center, which was bought by Boston-based Bain Capital for about $2.1 billion, on Nov. 5 sold a $650 million institutional loan at 97 cents on the dollar. The loan had initially been marketed at 98 cents on the dollar, according to Standard & Poor’s Leveraged Commentary & Data.
The loan pays interest of 350 basis points above the three- month London interbank offered rate, which is now 4.9 percent. •