American Tire Distributors, Inc. (ATD), one of North America's largest independent suppliers of replacement tyres, has filed for Chapter 11 bankruptcy protection on October 22, 2024, in the U.S. Bankruptcy Court for the District of Delaware. This marks ATD’s second Chapter 11 filing in the past six years, as the company previously underwent bankruptcy restructuring in 2018.
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Financial Snapshot of ATD’s Bankruptcy
ATD reported having between $1 billion to $10 billion in assets and liabilities. To facilitate its restructuring, the company secured $2.3 billion in debtor-in-possession (DIP) financing, with $250 million of new funding supplied by an Ad Hoc Lender Group. This financing aims to support ATD’s ongoing operations during the bankruptcy process, which it expects to continue across its U.S. distribution network.
Outstanding Debt to Major Tyre Manufacturers
ATD’s bankruptcy has left tyre manufacturers with significant unpaid balances. The company owes more than $589 million to its tyre manufacturing partners, including substantial sums to some of the industry's largest companies:
These four companies alone account for over $350 million of the unpaid debt, with Goodyear and Continental having the largest individual claims.
Restructuring Support Agreement and Potential Acquisition
A key component of ATD’s bankruptcy filing is its Restructuring Support Agreement (RSA), signed by lenders holding approximately 90% of ATD’s outstanding debt. The RSA outlines a plan for the Ad Hoc Lender Group to provide $250 million in DIP financing and to pursue an asset purchase agreement that would see them take ownership of ATD if no other buyers emerge.
Operations During the Chapter 11 Process
Despite its financial challenges, ATD plans to keep its U.S. distribution network operational throughout the restructuring. The company has secured access to $1.2 billion in financing under its prepetition asset-based lending (ABL) facility, which, along with the DIP financing, should allow ATD to maintain business continuity during the bankruptcy proceedings.
Industry Context and ATD’s Struggles
ATD’s financial instability reflects broader trends and challenges facing the automotive and replacement tyre sectors. Following its 2018 bankruptcy, ATD reduced its debt by $1.1 billion and secured $1 billion in financing. However, evolving industry dynamics—including major tyre manufacturers increasingly opting for direct-to-consumer sales—created additional pressure on ATD’s traditional business model, affecting its revenue and cash flow. This restructuring follows a pattern seen in the automotive aftermarket sector, where several large companies have recently sought bankruptcy protection due to operational challenges and shifting market demands.
Looking Forward
ATD’s restructuring aims to alleviate its substantial debt burden while preserving its network of operations. For the company’s creditors, including its tyre manufacturing partners, the bankruptcy process will be closely watched to determine how much of their outstanding claims can ultimately be recovered. As the Chapter 11 proceedings progress, ATD’s operations and the outcome of the asset purchase agreement will likely impact the entire tyre distribution industry in North America.
