American Tire Distributors (ATD), the world’s largest tire distributor, has once again filed for bankruptcy protection on Tuesday, October 22nd, with plans to reduce its debt through a sale.
Based in North Carolina, the tire distributor filed for bankruptcy in the Delaware bankruptcy court, estimating debts as high as $1.9 billion, with only $30 million in cash on hand.
In the documents submitted to the court on Tuesday, ATD cited its limited liquidity as a barrier to addressing the post-COVID tire market and the volatility in other automotive parts markets. The company has secured a restructuring support agreement and is considering transferring ownership through a competitive sales process.
This is not the first time ATD has applied for bankruptcy, as they previously did so in 2018. Following the previous bankruptcy and successful restructuring, ATD shed $1.1 billion in debt and obtained $1 billion in financing.
During the COVID-19 pandemic and its aftermath, ATD faced a turbulent period in its business operations. While there was an initial surge in profits in 2021 due to increased consumer spending on used cars and replacement tires, the company’s liquidity suffered due to excessive investments in software and online tire retailers like Tirebuyer.com.
ATD focuses on selling high-end tires from renowned brands such as Michelin, Continental Group, and Hankook. However, their sales have been impacted in recent years as consumers seek more affordable replacement tires.
The company mentioned that due to inflation, they raised tire prices initially to boost profits but eventually encountered challenges with rising costs and supply chain disruptions.
Court documents reveal that after using post-pandemic profits for investments, ATD had minimal working capital to adapt to escalating costs. These investments did not yield the expected returns as per the initial plans.
Reportedly, ATD has entered Chapter 11 bankruptcy through a restructuring support agreement signed with a group of lenders controlling 90% of the company’s debt.
These lenders have agreed to provide an additional $250 million in financing to ATD and to directly acquire the company under specific conditions as there were no other buyers at the bankruptcy auction, according to court documents.
ATD affirmed that it will continue its operations across the United States despite the bankruptcy proceedings.
In 2023, ATD reported revenue of $5.7 billion and employed over 4,500 individuals in the United States. The company distributes tires to over 80,000 retail outlets, auto dealers, and online marketers nationwide.