American Tire Debt Plan Includes Possible Bankruptcy

(Bloomberg) -- American Tire Distributors Inc. is considering a bankruptcy filing as part of a proposed $2.4 billion debt overhaul, according to people with knowledge of the matter.

The deal would give holders of ATD’s subordinated bonds a 95 percent stake in the reorganized company, wiping out that debt while leaving its term loan outstanding, said the people, who asked not to be identified because the discussions are private. The tire distributor skipped an interest payment on the junior notes, kicking off a 30-day grace period before a default is triggered.

A filing isn’t certain, and the company could avoid a bankruptcy if it completes a deal outside court.

ATD said late Tuesday that it had reached an agreement with holders of more than 70 percent of the subordinated notes, although it didn’t disclose the terms. The deal would reduce the company’s debt by as much as $1.1 billion, it said.

“There are multiple paths ATD can take to facilitate its previously announced agreement in principle with the majority of its bondholders on a recapitalization,” a spokesman for the company said in a statement. “Regardless of how it facilitates the agreement, the company has liquidity and is serving customers as it always has while it takes actions to strengthen its financial position.”

The company, controlled by private equity sponsors TPG Capital and Ares Management LP, is also in negotiations over a $150 million loan that could fund it through bankruptcy proceedings, the people said.

American Tire was thrown into disarray after the makers of the Goodyear and Bridgestone brands decided they want to deal directly with consumers through their own networks. ATD has since been trying to fill the gap with tires made by Cooper, Continental and Michelin. But the lost business sunk the value of the company’s debt into distressed levels, with the subordinated notes due 2022 trading for less than a third of their face value.

American Tire’s term loan was quoted today at around 86 cents on the dollar, up from 78 before the deal was announced, according to people with knowledge of the matter.

Under the terms of the proposed deal, existing equity holders would keep the remaining 5 percent in addition to warrants, the people said. Moody’s Investors Service labeled the plan a distressed exchange and said it’s continuing to review ATD’s Caa2 rating, citing “lingering uncertainty” about the final form of the debt overhaul. Getting consent from the other bondholders who didn’t sign on to the plan “is far from assured,” Moody’s said, with bankruptcy looming as a likely alternative.

Holders of the senior subordinated notes stand to recover little or nothing if the company formally defaults, S&P Global Ratings said in a statement. S&P, which considers the debt exchange a selective default, said it could raise the company’s rating once a deal is complete. But S&P is unlikely to give ATD a higher grade than B, three steps above its score before the deal was announced.

--With assistance from Lisa Lee.

To contact the reporters on this story: Eliza Ronalds-Hannon in New York at eronaldshann@bloomberg.net;Katherine Doherty in New York at kdoherty23@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Shannon D. Harrington

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