By Becky Yerak
Gibson Brands Inc. pushed back at criticism of a plan to hand
ownership to a bondholder group led by KKR & Co., with the
bankrupt guitar maker saying none of 58 other parties it has
contacted have made a better offer.
Gibson, founded in 1894, sought protection from creditors in May
with a reorganization plan allowing senior secured bondholders led
by KKR to convert their debt into equity.
Blackstone Group LP's lending arm, GSO Capital Partners LP, and
other Gibson creditors, including electronics company Koninklijke
Philips NV, have criticized what they say is a weak effort by the
Nashville, Tenn.-based company to find a better offer. GSO, whose
claims include $77 million owed on a secured term loan, and
unsecured creditors have also questioned consulting and management
contracts proposed for two top executives.
In a filing Monday in U.S. Bankruptcy Court in Wilmington, Del.,
Gibson said it "extensively marketed" itself for more than six
months before its chapter 11 filing to potential strategic and
financial investors that it thought might be interested in a
refinancing or an equity deal.
"The market responded with only one 'bid'"-- that of the KKR
group, Gibson said.
No one else, Gibson said, was willing to make an investment at
least equal to the approximately $500 million in secured debt on
the balance sheet.
Gibson said it contacted 58 parties about potentially buying the
company or investing in it. Of those, 27 signed nondisclosure
agreements. Two made nonbinding "expressions of interest," one
before the bankruptcy and another during bankruptcy.
Gibson said the party expressing interest before the bankruptcy
hasn't been in touch recently and hasn't accessed the data room
since late June.
Gibson also said, since filing for bankruptcy, it has continued
to provide data-room access for interested parties but that it
still hasn't received "any proposal for a viable alternative
transaction."
Gibson also entered bankruptcy with KKR and other holders of its
$375 million in senior secured notes overwhelmingly agreeing to
provide up to $135 million in financing to the business to help it
get through chapter 11 proceedings.
In a filing earlier this week, GSO said it was willing to
provide additional financing to give Gibson more time to consider
alternative offers. GSO said it, too, earlier offered financing to
help Gibson get through bankruptcy -- and at terms more favorable
and that would have given the company more leeway to market itself
in chapter 11.
Gibson, however, says GSO isn't the white knight that it is
portraying itself as.
Gibson said restructuring talks with bondholders, now positioned
to own the company, accelerated "only after GSO made clear it would
not provide" the company with additional waivers past April 2018
for defaults on its term loan agreement.
Gibson also said GSO's earlier offer for financing to help it
get through bankruptcy hinged on an additional $10 million paydown
of an outstanding debt before the bankruptcy -- money Gibson didn't
have.
So GSO's arguments that Gibson failed to adequately market
itself before bankruptcy "ring hollow in the face of the facts that
GSO accelerated" Gibson's restructuring through "repeated demands
for millions of dollars."
"Similarly hollow," Gibson said, is GSO's "new expressions of
'willingness' to 'help' finance" a sales process. Gibson said GSO
"is the subject of an ongoing investigation regarding its
pre-bankruptcy conduct" with the company.
A representative for GSO had no immediate comment.
Also, Gibson said, GSO hasn't explained how its new financing
would address current senior secured debt -- namely $57 million of
bankruptcy financing, which could rise to about $135 million if
GSO's term loan is refinanced, as well as the $383 million of
principal and interest owed to secured bondholders.
Gibson wonders, for example: Is GSO offering to refinance those
debts in full while a "hypothetical bidding process is run and take
the risk of a failed auction?"
"GSO does not provide any details," Gibson said.
Gibson also said Philips' claim that it is owed $57.2 million is
"substantially inflated."
Gibson's chief executive and president, who are also board
members, would receive management or consulting payments totaling
almost $5.5 million under the restructuring plan, as well as
warrants exercisable into a combined 4.4% of the new equity in the
business.
Gibson said the two executives bought the company in 1986 and
"have a wealth of" operational, customer, employee and industry
knowledge that the secured bondholders will "seek to tap as the new
owners of the business."
Write to Becky Yerak at becky.yerak@wsj.com
(END) Dow Jones Newswires
July 24, 2018 17:15 ET (21:15 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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