Gibson Fends Off Criticism of Sale Process -- Update

Date : 07/24/2018 @ 9:30PM
Source : Dow Jones News
Stock : Koninklijke Philips NV (PHIA)
Quote : 42.61  0.805 (1.93%) @ 4:40PM
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Gibson Fends Off Criticism of Sale Process -- Update

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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


(END) Dow Jones Newswires

July 24, 2018 17:15 ET (21:15 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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