HUNTERSVILLE, N.C. — American Tire Distributors Inc. (ATD) voluntarily has filed for Chapter 11 bankruptcy, a court-supervised process that allows North America’s largest tire distributor to take the next step toward reducing its debt.

According to a news release issued late on Oct. 4, ATD reached agreement with approximately 75 percent of its bondholders on terms of a recapitalization that will reduce the firm’s debt by around $1.1 billion.

ATD also said it has secured a commitment for $250 million in new financing to fund the process.

The terms of the agreement, ATD said, are “substantially” similar to the agreement in principal that the company announced Sept. 4.

The bottom line, according to ATD, is that business will continue as normal.

ATD CEO Stuart Schuette made that clear to the company’s 5,000 employees across North America in letter emailed to them shortly after the announcement was made early on Oct. 4. Tire Business hasacquired and verified a copy of the correspondence.

“We are moving forward on a clear and expedited path to strengthen our financial position and continue our successful, game-changing transformation,” Mr. Schuette wrote.

“We intend to move through this process as quickly as possible. The strong support of our bondholders will allow us to do so on an accelerated basis,” he wrote in the letter.

Mr. Schuette told employees three keys items about what this means for them and the company’s future:

  • ATD remains open, ” taking care of our customers and supporting them across all channels, as well as the consumers they serve.”
  • Employees will continue to receive pay and benefits, just as they always have; and
  • ATD is counting on the commitment of its workforce “to continue providing customers the high-quality service they expect from our company.”

ATD’s Canadian subsidiary, National Tire Distributors, is not affected by the process.

According to the court filing, Continental Tire North America Inc. ($123.8 million), Cooper Tire & Rubber Co. ($89.1 million), Michelin North America Inc. ($59.6 million), Nexen Tire America Inc. ($52.8 million) and Toyo Tire USA Corp. ($40 million) are among the list of ATD’s largest unsecured creditors. Goodyear ($16.2 million) and Bridgestone Americas Inc. ($12.5 million) are also in the top 15 creditors, as listed in the documents.

In the news release, Mr. Schuette called the filing “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.

“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,” he continued. “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.”

In his letter to the ATD team, Mr. Schuette said the announcement may cause “more noise and misinformation in the marketplace,” and he assured employees ATD will provide them timely updates as the process plays out. He offered employees “the opportunity to speak with your team leaders and ask more questions about this announcement.”

Other parts of the agreement, subject to court approval, are:

  • Bondholders will receive 95 percent of new equity in the recapitalized company, and existing equity holders will receive 5 percent of the new equity.
  • The company intends to pay continuing manufacturer partners and vendors in full for existing claims.

Mr. Schuette said ATD remains focused on providing customers the “selection and service they have come to expect from us.

“We have momentum and are continuing our efforts to lead change in the industry,” he said. “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 maximize their profitability.”

Among the new initiatives is a “Hassle Free. Guaranteed.” campaign launched recently by ATD’s marketing group, Tire Pros. The ambitious, million-dollar national program provides Tire Pros dealers a variety of marketing assets in order to maintain and grow their business.

Tire Pros also is launching an online benchmarking tool that allows dealers to measure their performance against other Tire Pros dealers, both regionally and nationally, on an ongoing basis.

Stuart Schuette, CEO of ATD, believes customers value its role in helping them achieve success.

“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,” Mr. Schuette said.

ATD’s difficulties began earlier this year when two of its largest customers, Bridgestone Americas Inc. and Goodyear, announced they were discontinuing most or all their supply relationship with the tire distributor. The two tire makers launched their own distribution joint venture, TireHub L.L.C., which began operations on July 3.

Soon after losing two major customers, Moody’s Investor Service Inc. questioned whether ATD had sufficient cash reserves to cover certain projected interest payments and maintenance costs in the near future.

Moody’s said ATD must cut a significant amount of its cost, while replacing 40 percent of the revenue lost from the departures of Goodyear and Bridgestone, in order to cover projected annual interest payments and maintenance investments of $243 million.

In late July, ATD restructured its operations internally, eliminating 100 positions at its Field Support Center (FSC) in Huntersville as part of a new strategic plan. In addition, ATD said it would reinvest in 40 new positions— in large part to bolster its Tire Pros franchisees — many of which have been filled.

Chicago-based Kirkland & Ellis L.L.P. is serving as legal counsel to ATD, while global consulting firm AlixPartners L.L.P. is an operational advisor. Investment banker Moelis & Co. L.L.C. is serving as financial advisor.

Mr. Schuette told his associates he is grateful for their hard work, “steadfast” support and dedication. “Your passion is inspiring and on behalf of the entire management team, thank you for all you do for ATD.”

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