American Tire Distributors lines up sale to lenders in bankruptcy

Reuters

American Tire Distributors lines up sale to lenders in bankruptcy

Oct 23, 2024 at 6:37 pm GMT

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By Dietrich Knauth

Oct 23 (Reuters) -American Tire Distributors, the largest seller of replacement tires in the U.S., filed for bankruptcy protection late Tuesday for the second time since 2018, seeking to sell itself to a group of its lenders.

The Huntersville, North Carolina-based wholesaler entered bankruptcy with $1.9 billion in debt, and just $30 million in cash. American Tire's limited liquidity left it ill-equipped to weather a volatile post-pandemic market for tires and other auto parts, according to court documents filed Wednesday in Delaware bankruptcy court.

The company had $5.7 billion in revenue in 2023, and it has over 4,500 employees in the U.S., according to its court filings. It distributes tires to 80,000 retailers, automotive dealerships, and web-based marketers located throughout the U.S.

American Tire entered Chapter 11 with a restructuring support agreement signed by a lender group that controls 90% of its debt.

Those lenders, which include funds managed by Guggenheim Partners Investment Management LLC, KKR, Monarch Alternative Capital LP, Sculptor Capital Management Inc, and Silver Point Capital L.P., have agreed to provide $250 million in additional financing to the company and to acquire it outright if no other buyer emerges in a bankruptcy auction, according to court documents.

American Tire previously filed for bankruptcy in 2018, ultimately completing a restructuring that eliminated $1.1 billion in debt and provided the company with $1 billion in financing.

American Tire’s business suffered through a volatile period during the COVID-19 pandemic and its aftermath, according to court filings. The company saw an initial surge in profit in 2021 as consumers spent more on used cars and replacement tires, but it overextended itself with investments in software and consumer-facing online tire sellers like Tirebuyer.com.

American Tire, which focuses on selling higher-priced tires from well-known brands like Michelin, Continental and Hankook, also said that its sales have suffered in more recent years as consumers have sought cheaper alternatives for replacement tires.

Post-pandemic inflation raised prices for tire consumers and initially boosted American Tire's profits, but it eventually forced American Tire to confront rising costs and disruption in its supply chain. The company had little flexibility to adjust to rising costs after spending its post-pandemic profits on investments that "have yet to realize the benefits the Debtors originally envisioned when making them,” according to court documents.

The case is In re: American Tire Distributors, U.S. Bankruptcy Court for the District of Delaware, No. 24-12391

For American Tire: Chad Husnick, Anup Sathy and Edward Corma of Kirkland & Ellis LLP, among others

American Tire's Ch. 11 filing hits the road after deal with bondholders

Reporting by Dietrich Knauth

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