American Tire Distributors Inc (ATD), a seller of aftermarket auto parts that previously went through Chapter 11 in 2018, enters a new bankruptcy case with a total of USD 2.3bn in debtor-in-possession (DIP) financing, with USD 250m of that coming as new money, and an agreement with lenders setting up an asset sale process.

ATD filed its “Chapter 22” petition late on Tuesday (22 October) in the US Bankruptcy Court for the District of Delaware, reporting USD 1bn to USD 10bn in both assets and liabilities. The company comes into its latest bankruptcy case with a restructuring support agreement (RSA) through which lenders holding about 90% of ATD’s funded debt have committed to providing DIP financing to support the Chapter 11 process.

ATD said it is in the final stages of negotiating an asset purchase agreement with an ad hoc lender group—consisting of Guggenheim Partners Investment Management, KKR, Monarch Alternative Capital, Sculptor Capital Management and Silver Point Capital—that would serve as a baseline for a competitive sale process.

With its Chapter 11 filing, ATD joins a handful of recent large bankruptcies among players in the automotive and aftermarket auto parts sectors, including that of fellow wheel and tire-focused company, Wheel Pros, which entered bankruptcy in September with USD 1.75bn in debt and a pre-arranged restructuring plan that has since secured confirmation.

Judge Craig Goldblatt has been assigned to oversee ATD’s Chapter 11 case, and has scheduled a first day hearing for Thursday (24 October).

Debtwire Dockets: American Tire Distributors Inc (access required)

The company

Based in Huntersville, North Carolina, ATD bills itself as one of the largest independent suppliers to the replacement automotive tire market. The company operates more than 115 distribution centers and other facilities in 47 states, serving approximately 80,000 customers across the US, and has about 4,500 employees throughout its distribution network, according to a first day declaration from Jim Bienias, an AlixPartners partner also serving as ATD’s chief restructuring officer.

ATD began in 1935 as a local store called Heafner Tire in Lincolnton, North Carolina, Bienias said. Between 1985 and 1997, Heafner acquired Beach Tire Mart, Commonwealth Tire, and Oliver & Winston, which added 135 locations to the company. Heafner brought in another 23 companies over the next 20 years, and changed its name to ATD in 2002.

TPG Capital purchased a 93% stake in ATD in 2010 for USD 1.3bn. The debtors attempted an initial public offering in 2014, but later abandoned those plans and instead TPG sold about half of its interest to Ares Management in February 2015 for USD 620m. Brands sold by ATD include Michelin, Continental and Cooper, among others. The debtors also sell their own products, including those from Hercules Tire & Rubber Company, which ATD acquired in 2014. The company also operates the direct business-to-consumer website TireBuyer.com and an automotive sector-focused analytics company called Torqata Data and Analytics—both of which are co-debtors in the Chapter 11 case.

The debt

Beyond its secured funded debt, ATD reports a number of large unsecured claims, including a USD 121.64m trade payable owed to The Goodyear Tire & Rubber Co and a USD 81.07m trade payable owed to Continental Tire North America Inc.

The 2018 Chapter 11 case and subsequent descent

ATD previously went through Chapter 11 in a case that took place over roughly 10 weeks in late-2018. That case came on the heels of steps taken by two of ATD’s then-largest suppliers to form a joint distribution venture that allowed them to ship products directly to dealers and retailers instead of working through ATD. At the time of the October 2018 petition, ATD had negotiated an RSA with equity sponsors TPG Capital and Ares Management, as well as 75% of subordinated noteholders. Through the plan confirmed in the earlier case, 95% of the reorganized entity’s equity ended up in the hands of holders of USD 1.05bn in subordinated notes, while the remaining 5% of new equity remained with TPG and Ares.

In the wake of the 2018 restructuring, ATD’s path “was complicated by a range of contributing factors,” said Bienias.

“From 2019 to 2021, due to a variety of factors, including the soaring inflation that followed the COVID-19 pandemic and the subsequent replacement tire sales boom, the Company experienced a sizable increase in profits from sales of its replacement tire and wheel products,” the CRO continued. “At the end of 2022, however, the demand for automotive products and services compressed, and the surge in profits that the Debtors’ core business had enjoyed came to an end.”

Starting in 2023, ATD’s financial performance suffered in response to market forces that included shifts in consumer preferences toward less expensive tires, an overall drop in consumer demand, increased labor, logistics and other operating costs and a shrinking of the company’s sales channels, said Bienias.

“In light of these obstacles beyond the Company’s control and the Debtors’ inability to quickly rationalize their largely fixed cost structure while continuing to serve their national market, the Debtors began to explore all strategic alternatives, including an investment in or sale of some or all of its business,” the CRO said.

Those efforts to drum up investors or buyers began in May 2022, and came close to a deal in June 2024, when it received a non-binding letter of intent from an unnamed prospective purchaser. Although ATD and its investment banker decided it made sense to negotiate with that party on an exclusive basis, no deal was ultimately reached and the potential buyer terminated its letter of intent on 9 October, said Bienias.

ATD’s attempts to restructure outside of court led to a July 2024 amendment to its existing ABL credit agreement, providing the USD 75m delayed draw FILO facility now on the company’s balance sheet. By September, Bienias said, “it became clear that an out-of-court transaction may not be actionable as the Debtors monthly financial performance continued to decline and liquidity issues mounted.”

Around that time, ATD hired Kirkland & Ellis as legal counsel and AlixPartners as a restructuring advisor, also tapping Moelis & Company to serve as a financial advisor and investment banker. The company’s advisors then engaged in negotiations with the ad hoc group of term loan lenders, organized with Akin Gump Strauss Hauer & Feld as legal counsel and Perella Weinberg Partners as financial advisor, as well as with ABL agent Wells Fargo Bank, which had Otterbourg as legal counsel and PKF Clear Thinking as financial advisor.

Those talks ultimately led to the RSA, which was signed on Tuesday and includes lenders holding approximately 90% of ATD’s prepetition term loan facility and 100% of the company’s prepetition ABL facility.

The DIP and Chapter 11 case

Now back under Chapter 11 protection, ATD hopes to pursue a sale process with support from the ad hoc lender group signed onto the RSA. Among the forms of support, the company’s existing lenders have agreed to unlock a total of USD 2.3bn in DIP financing, which would come in several pieces and offers USD 250m in new term loan financing.

Including the USD 250m in new money, ATD has proposed a USD 1.12bn DIP term loan facility that would roll up USD 92m in principal and an applicable premium owed under the 2024 delayed draw FILO loans and up to USD 750m of prepetition term loan debt. The USD 1.12bn amount of the DIP term loan facility also includes USD 31.3m in fees associated with the rolling up of prepetition debt into DIP loans, according to ATD’s motion seeking approval of the DIP.

The other significant piece of DIP financing comes through the roll-up and conversion into postpetition financing of the company’s existing ABL and FILO facility. ATD said the total DIP ABL facility consists of USD 1.1bn in ABL availability, USD 100m in FILO availability and would include a roll-up of USD 49m in undrawn letters of credit under the prepetition ABL-FILO facility.

The DIP loan agreements, along with the RSA, set out a series of deadlines for ATD to complete key milestones in its Chapter 11 case, including the filing of a bid procedures motion by 29 October that would establish a bid deadline in about two months.

Source: Proposed DIP financing order dated 23 October 2024

The advisors