A group of Gibson Brands bondholders represented by PJT Partners and Paul Weiss has contacted the company’s management requesting a response to concerns about a series of material disclosures that have not been provided to the noteholders, according to sources. The company invited principal members of the group to meet with management, but the holders requested the company first meet with their advisors; ultimately, the holders and company were unable to agree on terms for a meeting, the sources said.

In a letter, the ad hoc noteholder group asserted that Gibson has both failed to disclose material agreements and has provided the holders with material misrepresentations, including regarding the domestic and international term loans provided by GSO, the sources add.

Gibson CEO Henry Juszkiewicz told Reorg today that despite the noteholder allegations, Gibson has been and continues to be in compliance with the covenants governing the company’s debt.

Gibson disclosed to creditors in July that in exchange for agreeing to a reset of the credit agreement’s minimum consolidated EBITDA covenant through March 2018, it would - among other things - pay GSO a $20 million prepayment on the domestic term loan through four monthly payments. The company’s recent financial statements include language stating that the company may make the $20 million prepayment on either the domestic or international term loan. According to sources, the ad hoc group stated in its letter that to the extent Gibson is prepaying the international term loan rather than the domestic term loan, the company has provided the notes with a material misrepresentation. The disclosure would be particularly material to the noteholders because the notes hold, in addition to a first lien on the company’s intellectual property, a second lien behind the domestic term loan on the ABL’s AR and inventory collateral.

Sources say the noteholders mentioned in their memo to Gibson that they have not been provided with documentation for the GSO term loan credit agreements or any of the subsequent amendments. They also expressed concern in the letter regarding whether the company has perfected the holders’ security interests in unrestricted subsidiary TEAC as provided for in the notes indenture, sources add.

The company’s capital structure includes $375 million of 8.875% first lien notes due 2018, a $60 million international term loan and a $70 million domestic term loan (each provided by GSO and each accruing interest at the rate of LIBOR+12.25%), as well as a $55 million ABL facility due 2022. If the notes are not refinanced in full by July 1, 2018, the company’s term loans - otherwise due Feb. 23, 2023 - have a springing maturity on July 23, 2018. The company is in the exploratory phase of recapitalizing its notes and intends to make its upcoming interest payment on the notes in February, Juszkiewicz said today. The company is advised by Jefferies, Alvarez & Marsal and Goodwin Procter.

Gibson released earnings for the second quarter on Nov. 15, reporting net sales of $278.9 million, a 13.6% decline compared with the same period a year earlier and gross profit of $84.8 million, down 11.8% compared with the same period in 2016, according to the consolidated results, reviewed by Reorg. Consolidated gross profit margin improved from the same period last year to 30.4% from 29.8%.

Operating profit in the period improved by 70.6% year over year to $18.8 million, with an operating profit margin of 6.7%, compared with 3.4% in the same period a year earlier. Consolidated adjusted EBITDA increased 7.7% year over year to $22.3 million. Restricted group EBITDA totaled $19.5 million, up from $18.8 million in 2016. Consolidated capital expenditures, net of sales, were down 3.8% to $1.8 million. Juszkiewicz said today that the company is focusing the consumer electronics business on higher-margin and higher-gross categories, such as headphones, wireless and audio.

As also referenced by the bondholders in their letter to the company, Gibson did not disclose recent asset sales as “subsequent events” in its quarterly report, according to sources. After reports of the company’s downtown Memphis factory being marketed for $17 million, the company said in an official statement in October that it had moved its Memphis operations to a smaller factory, in part to “achieve improved efficiencies.” On Nov. 10, according to Tennessee state deed records, Somera Road Inc., a commercial real estate investment firm based in New York, purchased a Nashville warehouse from Gibson for $6.4 million. The company had disclosed on its Aug. 29 first-quarter earnings call that - as another condition to the reset GSO loans covenant - the company would be pursuing the monetization of non-core assets.

Gibson will hold a call on Thursday, Dec. 7, to review results for the second quarter of fiscal 2017 ended Sept. 30, the CEO said today.