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Guitar Maker Gibson Files For Chapter 11 Bankruptcy Protection

May 1, 2018 / 12:20 PM PDT / CBS LA

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(CBS News) -- The maker of Gibson and Les Paul guitars has filed for bankruptcy protection, with the iconic brand known for crafting instruments used by the likes of Elvis Presley, B.B. King and Keith Richards seeking to turn its business around in the face of declining sales.

Long associated with rock and roll, the more than century-old company's products have been embraced by guitar legends including Chuck Berry, whose beloved cherry-red Gibson guitar was affixed to the inside of his coffin lid after his death last year.

In recent years, the company, which also makes Baldwin pianos, has struggled as guitar sales declined, and an effort at diversifying its business by buying a line of consumer electronics in 2014 proved to be bigger drain on cash than expected.

A restructuring agreement gives some of the company's lenders an equity ownership, the Nashville, Tennessee-based Gibson Brands said Tuesday.

"Over the past 12 months, we have made substantial strides through an operational restructuring," Gibson CEO Henry Jusziewicz said in statement. Focusing on its core business "we believe will assure the company's long-term stability and financial health," he added.

Juszkiewicz holds a 36 percent stake in the company, which now needs the approval of a federal judge to jettison its debt. An agreement with secured noteholders would help the company repay bank loans as it goes through a "change of control" transaction, the company said in its filing.

With up to an estimated $500 million in debt, lenders have agreed to a loan of up to $135 million to fund its operations. Current noteholders include Silver Point Capital, Melody Capital Partners and funds affiliated with KKR Credit Advisors, according to the court papers.

Gibson sells more than 170,000 guitars each year in 80 countries. It plans to continue making and selling musical instruments, including Baldwin pianos, and equipment.

The company will shut down Gibson Innovations, a unit that manufacturers Philips-branded speakers and headphones.