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Discussion in 'Bad Dog Cafe' started by bluesky1963, Feb 22, 2018.
Right, but debt isn't equity.
Debt gets first claim on money in a restructuring. Equity holders (stock) take what's left.
On the brighter side, debt holders only stand to get their money back plus interest. Equity holders... the sky's the limit. If the company does well, they reap the profits. They own the company, not the debtors.
Just like how you own your home, and can decide to remodel, put in a big garden, etc. The bank that holds your mortgage has no say in the matter. But, don't make your payments as agreed, then the bank can apply various amounts of pressure to get their money. If you're broke, this usually entails selling the house, to get the cash. You'll get whatever cash is left after the debt is forcibly paid, but you won't have a place to live anymore.
According to the article, the bondholders (bank) are nervous - but there's nothing actually wrong yet. But they anticipate problems when the debt comes due. Henry says they're trying to narrow his options, so they can gain control of the company. He could well be telling it straight here. Common tactic. That said, all the bondholders want is a guaranteed return. They don't want risk. They don't want to RUN Gibson. Very doubtful.
Henry's implying different banks (Jeffries) may be interested in refinancing the whole shebang. The existing bondholders will be paid off lump sum (buh bye), and then Henry just has to live within the new environment he will have made for himself.
Remains to be seen if Jeffries or any other will be enticed. Jeffries is not your typical riskless bondholder. They're entrepeneurs, and they go after all kinds of stuff. They could well craft a very creative deal, giving Gibson new life, though carving out some big chunk for themselves over the coming years. If that happens, then we still need Henry to see the error of his former ways, and not continue to vaporize more capital on boneheaded, non-guitar schemes.
Jeffries will almost certainly gain seats on the board, if anything goes through, so they'll be able to rein him in, to some degree.
A lot of guesses here, but I used to follow Leucadia very closely, and they merged with Jeffries, which got them on my radar, too. Very, very smart folks. Not just some sheep.
This is what I read which the author says is killing Gibson, that such great guitars are made nowadays at low price points, that the high price stuff doesn't sell. But Gibson has its low cost subsidiary brand(s), and Fender seems to be weathering the storm (is it?), so I don't get it.
They also point to an overall drop in guitar sales, most likely due to that non-music crap that kids are listening to these days.
How can they miss the "you?"
I think the opposite is fairer, they loaned him the money knowing full well what he was using it for. Give the banks the consumer electronics crap.
I'm not a lawyer, but I am interpreting the 'cramdown'' the opposite, Henry can cramdown the creditors, am I misinterpreting?
Yup, I see the typical golden parachute for Hank, as the creditors will insist on a new CEO. Are we going to speculate all the way to August?!
That is the most detailed and comprehensive overview of what’s going on inside Gibson that I have read anywhere.
I like learning things succinctly, you have indeed accomplished that, I’m tipping my hat.
If Gibson didn’t own them, you’d think Epiphone was trying to put them out of business.
I just heard Alan speak last week in Orlando.........
That's a great way of putting it! And which confuses the hell out of me, since business ain't my thing:
Epiphone's bottom line is totally separate from Gibson's? One has nothing to do with the other vis-a-vis their balance sheets?
My God, I'm really stupid when it comes to this stuff.
Me too, I just know what I see.
Epiphone is making Les Pauls in many flavors that are amazing, near flawless guitars.
They have top notch hardware and many have Gibson USA pickups.
They are nipping at Gibson’s heals, and I’m sure Gibson is loving it, or they wouldn’t allow it.
So, a player has every right to be confused.
They need to sick two security guys on him to frog-march him out of the building. Don't want him making a dramatic exit.
If he isn't available they should get Vince Offer the ShamWow pitchman, Dennis Rodman, the guy who does the voice over for the AFLAC duck or Tonya Harding.
Anyone but Henry J.
As the Bloomberg article states, the massive debt (which is causing the current financial crisis) was borrowed to build the consumer electronics biz. In other words, it's gone.
If Henry'd just stick to his knitting, he'd be fine.
If Epi is a wholly owned subsidiary, as I believe they are, then even though they keep a separate set of books, they still send all their net profits back to Gibson.
Epi earning more is only a problem if it overall nets the company less profit. For example, if Epis sell so well that more players decide to save money and just buy an Epi instead of a Standard and the profit margin on the Epi is lower. If it's higher, then win-win, at least in the short term. There's still the brand position and company identity. Gibson probably sees it as strategic that they don't (say) dump the USA production entirely, and just become an offshore budget producer. (I hope so anyway).
By keeping the books separate, it forces Epi to stand on it's own merit, and be responsible for it's profitability. There will be some sharing of resources for efficiency (ex. design, wood buying, legal, marketing?), but Epi is a complete separate company with it's own managers, factories, etc.
An example of a different situation would be with PRS. One company, with several brands or product lines. The S2 line is made in the same factory, by the same workers, as the high end stuff. Any separate bookkeeping would just be internal. But think how difficult it would be for PRS to spin off and sell the S2 line. They wouldn't want to, but if they did, it would be hard because they haven't isolated it into a separate entity. Epi on the other hand... easy, theoretically.
Epi is made in China, cheaper labor, less environmental regs and fees. Also raw wood that may be more expensive to import into the US , may be imported as a finished product by Epi.
Henry has to find a way to pay the notes that are due. If not he will be at teh mercy of the bondholders and eventually the courts.
Just like a car or a house, the property or asset is only yours if you pay the loan or the mortgage otherwise you face repossession or foreclosure.
In a bankruptcy reorganization the bondholder have to agree to the terms and they can dictate those terms.
Gibson itself could be fine after a reorganization if it got back to basics.
I'm not going to watch that, but if he knows cars, he doesn't automatically know about guitars.
I'd pick Sammy Hagar instead.
If he knows about tequila (and when to sell) , he doesn't necessarily know about guitars.
Plus, I never saw Sammy playing anything remotely cool...