Slipping sales and a shift away from guitars to electronics hurting Gibson.
Poor sales last year and high executive turnover has led to a credit downgrading for prominent guitar maker Gibson Brands.
Moody’s Investors Services, in a recent negative report, lowered the Nashville-based, privately owned guitar company from B3 to a Caa1 credit rating, citing Gibson’s high debt obligations in a risky consumer electronics business. Gibson faces debt payments of nearly $100 million due over the next 22 months.
The downgrade comes as Gibson seeks to shift its focus from primarily guitars and other musical instruments to becoming a more broad music lifestyles company. Over the past few years, it has been aggressively buying consumer electronics, including home movie and audio equipment maker Onkyo and WOOX, the audio, video, multimedia and accessories business for Philips.
Gibson, maker of the iconic Les Paul model favored by prominent rock players such as Jimmy Page, Slash and Neil Young, has been plagued by reports that Gibson Chairman and CEO Henry Juszkiewicz leads through fear and intimidation. In addition, customers have complained that the latest models are overpriced and lacking in quality compared with competitors’ products.
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Despite the challenges, Gibson said sales are improving. Also, the company has hired a new CFO, Benson K. Woo, from Rayonier Advanced Materials Inc., to help address stability concerns about senior management.
“While we experienced a soft reception to our 2015 products, we have since introduced our improved 2016 product line that is performing extremely well both in sales to retailers and sell through to consumers globally,” Juszkiewicz said in a statement. “We feel we are on an upward trend, poised for an excellent year and are confident of the future.”
Moody’s said it is unlikely it would improve Gibson’s rating in the short term but could upgrade it long term if the company is able to improve and sustain its operating performance.
In the meantime, the 114-year-old company said it planned to continue expanding and hiring people. Juszkiewicz said the company hoped to start manufacturing consumer audio products in Nashville within the year.
Despite the company’s troubles, its guitars still carry cache. Mike Campbell, lead guitarist with Tom Petty and the Heartbreakers, told the Tampa Bay Times in 2010 that he paid enough to “buy a house’’ for a 1959 Les Paul. He said it was his dream come true, as only about 500 of them are left.
