What’s as American as a Gibson guitar? Well, lately, perhaps iconic brands getting run into the ground by mismanagement at the top.

And that’s one way to read the situation with Gibson Brands. Gibson, the Nashville-based guitar company that also owns names like TEAC Tascam and some Philips consumer audio products, is running out of time to pay back debts.

What’s next? Bankruptcy – if the company isn’t successful in refinancing.

Various music press have in the past days jumped on reporting by the Nashville Post that is critical of current management and suggests that owner/CEO Henry Juszkiewicz doesn’t have much time left. It’s the Post writers guessing that Gibson won’t be able to do enough to calm creditors and bondholders. That is – they’re not making loan payments fast enough, or giving a clear explanation, and the people who loaned them the money are getting fed up.

Gibson, for their part, this month offered up their own strategy. The company said in a press statement that it “has met all current obligations to the bondholders, is in the process of arranging a new credit facility to replace the bonds, and fully expects the bonds to be refinanced in the ordinary course of business.”

They’re also bringing back Benson Woo as Chief Financial Officer.

But that raises both the question of whether they’ll deliver on refinancing promises, and how they got here in the first place.

It’s easy to assume that this is about the demise of the guitar, but that may be mistaken. Indeed, Gibson Brands’ revenue has been down. But guitar sales in the US and worldwide remain fairly stable, looking at larger trends. These are instruments that last you a long time, meaning it’s easy to defer purchases – so the state of the economy is a factor. But while the statistics are hard to get a hold of (these numbers tend to be sold, rather than shared freely), it’s not hard to find evidence that the guitar market remains healthy.

Here’s a good read from 2015, from a marketing blogger:

19 Fascinating Guitar Sales Statistics [brandongaille.com]

Guitars certainly face challenges: think cheaper imports and knockoffs, plus a huge used market (that’s also going to become more and more relevant to synth and modular sales). But looking at the larger numbers and music in general, musicians who want guitars remain loyal to the instrument, and they’re willing to pay for a brand.

The question isn’t what’s going on with guitars, but what’s going on at Gibson.

And there, you might look at their electronics business, where Gibson is seeing sales sagging dramatically versus plans. That’s important, because it’s also where Gibson acquired these debts in the first place – as I noted when Gibson shuttered Cakewalk, the consumer audio push seemed a fools’ errand. Gibson argued at the time they needed to off-load Cakewalk to support that consumer audio push – but that could in turn just dig them deeper, while sacrificing a small part of their business that was insufficient to pay back debts.

So, while the immediate narrative may be: “ah, the demise of the guitar,” maybe it should be more like, “ah, that company loaned a bunch of money to go into consumer audio and now can’t pay it back because they screwed up.” Too much appetite for consumer audio may wreck Gibson the guitar company.

And that’s in fact what the Post argues: that the story at Gibson is mismanagement. Here’s the money quote (so to speak), from Kevin Cassidy, a senior credit officer at Moody’s Investors Service:

“Some type of restructuring will be necessary,” Cassidy said. “The core business is a very stable business, and a sustainable one. But you have a balance sheet problem and an operational problem.”

It seems that has to fall to the leadership at the top – Henry Juszkiewicz, the company CEO and owner. It’s been Juszkiewicz that led this massive expansion, then failed to connect the consumer audio and technology vision to the core instrument business, then failed to keep up with debts as the strategy sagged. But irrespective of whether the buck should stop there, bankruptcy is likely to mean he’ll be unable to retain his current position.

That is, as either debtors or the bondholders get control of Gibson, it may actually be cause for some fans of the core instrument business to applaud. Normally in America, the credit holders are the villains and the plucky upstart business owner the hero – you’ve seen It’s a Wonderful Life. But lately, management losing focus in favor of growth suggests sometimes the people looking at the numbers have a point.

Whatever is about to hit the fan will likely do it soon. Gibson are set to report third quarter earnings and answer to concerns from debtors or bondholders. If the Post article is to be believed – and I suspect it is – you’ll see whatever happens next at Gibson shortly.

It’s worth reading the full story:

Gibson ‘running out of time — rapidly’ [Nashville Post]