Modern Tire Dealer

NOV 2018

Magazine for the professional tire industry

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8 N e w s / V i e w s M T D N o v e m b e r 2 0 1 8 T he nation's largest independent tire distributor filed for Chapter 11 bank- ruptcy protection Oct. 4 with $2.6 billion of debt. In an agreement ironed out with 75% of the bondholders of American Tire Distributors Inc. (ATD), the compa- ny's debt would be reduced by $1.1 billion. It's a step ATD CEO Stuart Schuette called "positive, intentional and strategic." In a letter to employees he said it would make "ATD stronger than ever." e company's National Tire Distribu- tors and other Canadian subsidiaries are not part of the restructuring process. But the U.S. case does encompass Rubbr Automo- tive Services LLC, (a short-lived mobile installation experiment in Indianapolis, Ind.), Hercules Tire & Rubber Co. and Tire Pros Francorp. Most holders of the company's term loans have agreed to provide $125 million in new financing, extend the maturity of the term loan facility by three years, and offer exit financ- ing once the court process is complete. ATD said it is "open for business and taking care of our customers" as usual. But there is urgency in the court filings. e company calculated that it owed its "critical vendors" more than $239.7 million, of which about $113.3 million would be due within three weeks of the bankruptcy filing. Most of that money would be paid to tire makers, as ATD said tires accounted for 97% of its net sales in 2017. "Due to demand created by branding and marketing, the tire manufacturers are irreplaceable to the debtors," and ATD said that is particu- larly true following the April 2018 creation of TireHub LLC by Bridgestone Americas Inc. and Goodyear Tire & Rubber Co. Because those tire makers then pulled their products from ATD's lineup, "e debtors are therefore at a critical juncture of needing to convert certain former Goodyear and Bridgestone customers to other brands or risk losing business." Any interruption in the supply of replace- ment tires could have dire consequences. e company sought from the court, and received, permission to continue payments to these critical vendors, ATD said its business model was built on the "favorable trade terms and significant goodwill" of many tire makers, which had allowed the company to pay for its tires 30 to 90 days aer the shipment is received. Aer Goodyear and Bridgestone discontinued their relationships with ATD, other vendors restricted the terms of their agreements. Some asked ATD to post letters of credit, which the company estimated cost $130 million in "much-needed liquidity." If ATD was forced to pay cash on delivery, it would need more than $150 million in additional liquidity. Also at risk are the credits and volume-driven rebates ATD receives from vendors — $51.2 million as of the filing date. In exchange for payment, ATD will ask its vendors to agree in writing to return to terms in place prior to March 31. e company also will ask that its letters of credit be returned. And while an interruption in supply would be problematic any time of the year, ATD pressed that it's even more critical now, as the winter selling season has begun. "Any disruptions related to the critical vendors at this critical juncture — however brief — would jeopardize one of the debt- ors' most profitable selling seasons to the detriment of the debtors, their estates, and all stakeholders," ATD said. "In sum, the critical vendors are essential to the debtors' operations. "The debtors require a steady stream of goods and services from the critical ven- dors to maintain operational stability as they transition into Chapter 11. The tire manufacturers are sole-source suppliers and the debtors' customers rely on the debtors' ability to provide brand- name tires on an as-needed basis. Losing the support of even one tire manufacturer could seriously endanger the debtors' goodwill with their customers, causing them to utilize the services of a com- petitor. Following the loss of Goodyear and Bridgestone, there are simply no alternative tire manufacturers for the debtors to turn to. Without the critical vendors' goods and services, the debtors would be forced to cease or substantially curtail operations enterprise wide." — Joy Kopcha ATD files for Chapter 11 bankruptcy LOSS OF A TIRE SUPPLIER COULD 'SERIOUSLY ENDANGER' DEALER RELATIONSHIPS American Tire Distributors' top 30 creditors 1. Wells Fargo Bank $1.05 billion 2. Continental Tire North America Inc. $123.8 million 3. Cooper Tire & Rubber Co. $89.1 million 4. Michelin North America Inc. $59.6 million 5. Nexen Tire America Inc. $52.8 million 6. Toyo Tire USA Corp. $40 million 7. Zhongce Rubber (Thailand) Co. Ltd. $33.3 million 8. Nitto Tire USA Inc. $33 million 9. Sumitomo Rubber North America Inc. $26.4 million 10. Zhilian Trading Ltd. $26.2 million 11. Sailun Jinyu Group (Hong Kong) Co. Ltd. $26 million 12. The Carlstar Group LLC $20.8 million 13. Goodyear Tire & Rubber Co. $16.3 million 14. Hankook Tire America Corp. $14.4 million 15. Bridgestone/Firestone Inc. $12.5 million 16. Kumho Tire USA Inc. $11.8 million 17. Pirelli Tire LLC $9.5 million 18. Zenith Holdings Ltd. $3.6 million 19. Design Infini $2.9 million 20. Qingdao Free Trade Zone Zhillian Trade Co. Ltd. $2.9 million 21. Camso USA Inc. $2.9 million 22. The Boston Consulting Group Inc. $2.2 million 23. Sutong China Tire Resources Inc. $1.7 million 24. Martins Industries $1.1 million 25. Ultra Wheel Co. $933,121 26. Hennessy Industries Inc $903,210 27. Mickey Thompson $885,805 28. McKinsey & Co. $750,000 29. Marriott Hotel Services Inc. $577,324 30. CH Robinson International Inc. $408,347

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