Dive Brief:

• Ratings agency S&P Global downgraded Guitar Center again this week as the troubled instrument retailer tries to refinance and restructure debt. Guitar Center did not immediately respond to a request from Retail Dive for comment.
• S&P dropped the retailer's overall rating to CC, from CCC-, and issued a negative outlook. It follows Guitar Center's announced offer to lenders Monday to refinance some of its debt, according to a press release from S&P.
• Under the plan, Guitar Center would issue $635 million in senior secured notes due 2021, and use the proceeds, together with some cash, to refinance the existing $615 million secured notes, which carry a lower interest rate than proposed notes, according to S&P. Guitar Center also said it wants to amend and extend the maturity of its asset-backed loan revolver by three years, according to the S&P release. Analysts with the ratings agency view the exchange as distressed, as it comes short of the original bonds' promise.

Dive Insight:

Guitar Center, like so many distressed retailers before it, is doing its best to kick debt down the road.

The restructuring offer comes after months of the guitar seller negotiating with creditors on its more than $1 billion in debt. In December, S&P downgraded Guitar Center, for those talks, on the assumption they would lead to a distressed exchange of debt. Analysts with the ratings agency said at the time that the retailer's operating performance had improved, but any gains were unlikely to let the company, which was acquired in a leveraged buyout by Ares Capital in 2014, refinance its capital structure.

Guitar Center's efforts to negotiate a solution to its financial struggles show another path for retailers beyond the glaring headlines of bankruptcy. If the retailer successfully executes a debt exchange with its lenders, it could join J. Crew, Charlotte Russe and others in executing financial maneuvers that stave off Chapter 11, but it's a move that creditors still view as a form of default. (J. Crew's own debt exchange sparked court fights over details of the plan.)

As The Washington Post pointed out in a June story about the industry, electric guitar sales have dropped off by half a million over the past decade as musical tastes, and with them the methods of making music, shift. Other guitar store owners who spoke for the story told the Post their customers were getting older and they were facing online competition.

Moody's analysts said last April that Guitar Center — the world's largest guitar retailer, with 260 stores in the U.S. — wasn't likely to free up enough cash to meaningfully reduce its debt over the following 18 months. S&P wrote in 2017 that Guitar Center executives' turnaround efforts have been "unsuccessful," with same-store sales and profit growth declining as online players cut into its market.