“If tariffs persist, they could be highly disruptive and costly for the company”: Fender’s credit rating downgraded by Moody’s – with operating costs speculated to rise by $20 million

Fender’s credit rating has been downgraded by credit rating analyst Moody’s, with the organization citing the impact that newly imposed tariffs will have in its assessment.

As per the report, Fender Musical Instruments Corporation’s (FMIC) Corporate Family Rating (CFR) has been downgraded from B2 to B3, which indicates a higher risk of default. Moody’s has also downgraded Fender’s Probability of Default Rating from B2-PD to B3-PD, and its senior secured term loan rating from B3 to Caa1.

Overall, Fender had previously been given a stable outlook, but Moody’s has changed this to negative.

In its Rating Actions report, Moody’s forecasted “very high financial leverage and deteriorating liquidity” for the company in 2025, which has been driven by a “challenging operating environment”.

As a result, Moody’s projects Fender’s earnings to decline following labour inflation, increased promotional activity, pricing pressure, currency headwinds from a strengthening US dollar and tariffs.

On that last point, Moody’s has speculated that the increased financial pressures from President Donald Trump’s recent tariffs could increase operating costs by “approximately $20 to $25 million”.

This is a result of Fender producing guitars overseas in Ensenada, Mexico, and electronic products such as amps and pedals in China, both of which have been hit by tariff increases in recent weeks.

“Fender believes its goods satisfy the US-Mexico-Canada Agreement (USMCA) rules of origin such that the Mexico tariffs do not currently apply,” reads Moody’s report.

“However, a 25% tariff on products from its Ensenada, Mexico manufacturing facility and an additional 10% tariff on products manufactured in China and imported into the US would increase operating costs by approximately $20 to $25 million.”

Moody’s goes on to acknowledge that Fender is making adjustments to mitigate these increased costs – which will likely include its recent pivot to increased Indonesian manufacture.

However, the analyst expects short-term actions such as pricing adjustments and vendor concessions will fail to have a long-term impact if tariffs persist.

“While these measures are anticipated to mitigate some costs in the short term, prolonged imposition of tariffs will likely be highly disruptive and costly for both [sic] Fender,” the organization writes.

“China remains the largest global manufacturer of guitars by unit volume, and the musical instruments industry is already facing challenges such as weakening consumer confidence in the US and an economic slowdown in China.”

Specifically, Moody’s writes that the imposition of tariffs and the impact they will have on Fender’s overseas operations will be heavily felt owing to the fact they will affect “the entry and mid-tier segments of the market where competition is intense”.

“The ability to pass on costs to consumers is constrained in an already high-priced market,” it explains.

Of Fender’s new rating, Moody’s says it reflects “its strong brand recognition and market position in the acoustic and electric guitar categories. The company benefits from good geographic diversity and a long-standing reputation for high-quality products, supported by a well-diversified retail distribution network.”

“However, these strengths are offset by the company's narrow product focus and earnings volatility, which stem from the discretionary nature of demand for musical instruments,” the report adds. “This volatility is further exacerbated by the current challenging economic environment and exposure to new US tariffs.”

Moody’s says Fender’s credit rating could be upgraded again if the company is able to mitigate the effect of tariffs to generate organic revenue growth. It could also be downgraded if earnings decline further than expected.

Though the downgrade may alarm some observers, it's worth noting that Gibson was also historically downgraded by a major credit agency in 2018 right before it filed for bankruptcy. Gibson has since recovered under new ownership, and Fender's case is by no means as severe.

Fender has been approached for comment.

Visit Moody’s to read the full rating report.

In related news, boutique amp builder Morgan Amps revealed how new US tariffs would negatively affect its operational costs.