American Tire Distributors enters bankruptcy

December 2018 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

December 2018 Issue

American Tire Distributors filed for Chapter 11 bankruptcy protection in October to implement an agreement it reached with 75 percent of its bondholders on the terms of a recapitalisation that would slash its existing debt by around $1.1bn. The company had previously disclosed debts totalling more than $2.3bn.

The company, which is owned by TPG Capital and Ares Management LP, will continue to function as normal during the recapitalisation and the Chapter 11 process, the firm noted in a statement. The company’s National Tire Distributors subsidiary and its other Canadian subsidiaries are not part of the court-supervised process and will continue to serve customers.

Under the terms of the restructuring, the company’s bondholders will receive equity in a new, reorganised firm through a plan that is still subject to court approval, according to the filing. The company said it has a deal for $250m in new financing from a group of noteholders, including $200m of incremental liquidity. The company will also retain access to its current $980m revolving credit facility. The plan calls for the sponsors, who are existing equity owners, to keep a 5 percent stake in the reorganised company. Bondholders will receive 95 percent of the new equity.

“Today we are announcing a positive, intentional and strategic next step as we move forward on a clear and expedited path to strengthen ATD’s financial position and continue our successful, game-changing transformation,” said Stuart Schuette, chief executive of American Tire Distributors. “We thank both our customers and manufacturer partners for the unwavering support that we have received over the last several weeks, which reflects our value proposition and our trusted relationships with them. As the industry continues to evolve, the actions we are taking will enable us to keep the power of choice alive for customers and continue serving them like no one else can.

“We are as focused as ever on providing our customers with the unparalleled selection and service they have come to expect from us,” he added. “We have momentum and are continuing our efforts to lead change in the industry. We look forward to continuing to introduce innovative technology, new programs and tools over the coming months that will enable our customers to drive traffic to their business, enhance their operations and maximise their profitability. Our company has seen many changes to the tire industry over the past 80 years, and we have always succeeded by remaining focused on supporting our customers across all channels, and the consumers they serve. On behalf of ATD’s leadership team, I would like to thank our associates, whose talent, hard work and dedication will continue to be the driving force behind ATD throughout this process.”

American Tire’s financial difficulties began earlier this year when the makers of Goodyear and Bridgestone tires decided to deal directly with consumers through their own networks, rather than through third parties such as American Tire. Bill Williams, the company’s chief financial officer, also noted that Sears Holdings Corp.’s decision to install tires bought on Amazon.com also had a hugely detrimental effect on the company’s financial strength. According to a court affidavit, these moves have “disrupted the replacement tire industry”.

The company, which is the largest replacement tire distributor in North America, with 122 distribution centres across the US and another 24 in Canada, has a substantial list of unsecured creditors, according to the court filing. The biggest are Continental, Cooper and Michelin, which are owed almost $124m, $89m and almost $60m respectively. Smaller sums were owed to Goodyear and Bridgestone.

According to court documentation, the company’s senior lenders, which hold American Tire’s term loan, sought ‘excessive value’ in pre-bankruptcy talks, the company said. If a resolution with those lenders cannot be reached, the company’s reorganisation will reinstate the existing term loan.

Richard Summerfield