American Tire Distributors – Files Chapter 11, Bondholders to Get 95% of Restructured Company

October 4, 2018 – American Tire Distributors, Inc. and eight affiliated Debtors (collectively, the “Company” or “ATD”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 18-12223. The Company, the largest replacement tire distributor in North America based on dollar amount of wholesale sales and number of warehouses, is represented by Laura Davis Jones of Pachulski Stang Ziehl & Jones. Further board approved engagements include Kirkland & Ellis as general bankruptcy counsel, Moelis & Company as financial advisor and AlixPartners as restructuring advisor. In a press release announcing the filing, ATD advised that it had reached an agreement with 75% of its bondholders on the terms of a recapitalization that would reduce the Company’s debt by approximately $1.1 billion, pursuant to which, “Bondholders will receive 95% of new equity in the recapitalized company and existing equity holders will receive 5% of the new equity.” 

In his declaration supporting the Company’s Chapter 11 petition, ATD’s CFO William Williams commented on the underlying reasons for the Company’s decision to file for bankruptcy protection, “Specifically, these considerations include the recent disintermediation risk that has resulted from, among other things, TireHub’s formation [TireHub is the joint venture formed in April 2018 by Goodyear and Bridgestone whereby they directly supply their products], the decrease in sales due to tightened trade credit terms over concerns about the Debtors’ financial stability, and the impact that ratings agency downgrades has had on the availability of credit insurance that vendors rely on to manage unsecured credit exposure. This combination of factors has constricted Debtors’ liquidity, complicates their relationships with their remaining vendors, and has made it increasingly difficult for the Debtors to maintain their highly-levered capital structure in the face of declining sales.”

ATD’s petition notes between 50,000 and 100,000 creditors; estimated assets between $1 billion and $10 billion; and estimated liabilities between $1 billion and $10 billion. A list of largest unsecured creditors provided by ATD to the Court reads like a Who’s Who of tire manufacturers with Continental Tire North America ($123.8 million claim), Cooper Tire and Rubber ($89.1 million claim) and Michelin North America ($59.6 million claim) holding the largest trade claims. Twelve further trade creditors (including Bridgestone and Goodyear) hold unsecured claims of over $10 million. The Company’s press release stressed the importance of addressing the concerns of trade creditors, noting “The Company intends to pay continuing manufacturer partners and vendors in full for existing claims…[and] intends to pay suppliers and vendors in full under normal terms for goods and services provided on or after the Chapter 11 filing date. In connection with the court-supervised process, the Company has received commitments that would provide continued access to the Company’s revolving credit facility, plus $250 million in new financing, which, subject to court approval, will be available to support its ongoing operations.”