Auto parts retailers and distributors have been battling financial distress in 2024 as they face headwinds from several industry challenges.
One of the leading manufacturers of wheels and wheel end products for commercial trucks and trailers, Accuride, on Oct. 9 filed for Chapter 11 bankruptcy protection seeking a consensual restructuring of its debt to continue operating as a going concern.
💸💰 Don't miss the move: Subscribe to TheStreet's free daily newsletter 💰💸
Accuride and 15 affiliates filed their petition in the U.S. Bankruptcy Court for the District of Delaware after facing significant headwinds from the lingering effects of the Covid-19 pandemic on the debtor's business, operational difficulties, business integration challenges, inflation, supply chain disruption, and other geopolitical and macroeconomic forces that depressed revenue and increased costs, according to a declaration by Charles Moore, the debtor's chief restructuring officer.
Related: Formerly bankrupt retail chain opens new stores with rival
The debtor decided its best option was a post-petition transaction with the ad hoc group of its first-lien term loan lenders for an investment or purchase of some or all of its assets. under a Chapter 11 bankruptcy reorganization plan.
Wheel Pros, which operates as auto parts distributor and retailer Hoonigan, filed for a prepackaged Chapter 11 bankruptcy on Sept. 9 that would eliminate $1.2 billion in debt and provide about $570 million in new capital through an exit facility.
Under the restructuring support agreement and prepackaged bankruptcy filed in the U.S. Bankruptcy Court for the District of Delaware, Wheel Pros reached agreements with its equity sponsor Clearlake Capital Group and lenders for a consensual restructuring that will hand 85% of its new equity interests to holders of first-lien claims and the remaining 15% to new first-lien lenders who will backstop the debtor's exit term loan.
Shutterstock
American Tire Distributors seeks a sale in Chapter 11 bankruptcy
The latest auto parts provider to head to bankruptcy court is giant tire and wheel replacement company American Tire Distributors, which on Oct. 22 filed for Chapter 11 bankruptcy protection seeking a sale of its assets, burdened with over $1.9 billion in funded debt.
The Huntersville, N.C., tire distributor, with 15 distribution centers and over 80,000 retail customers in North America, filed its petition in the U.S. Bankruptcy Court for the District of Delaware in Wilmington, with a restructuring support agreement backed by an ad hoc group of its prepetition lenders.
The debtor listed $1 billion to $10 billion in assets and liabilities in its petition, which included unsecured trade debt owed to top creditors, such as Goodyear Tire & Rubber Co., owed over $121.6 million; Continental Tire North America Inc., owed over $81 million; and Toyo Tire USA Corp., owed over $63.3 million.
Related: Another iconic auto parts brand files for Chapter 11 bankruptcy
The debtor and 12 affiliates are seeking to obtain $1.45 billion in debtor-in-possession financing from its prepetition lenders to fund operations during the bankruptcy case, which includes $250 million in new money and access to $1.2 billion in financing under its prepetition asset-based lending facility. The debtors will also seek a sale of all its assets in a bankruptcy auction with its prepetition lenders serving as the stalking-horse bidder.
More bankruptcy stories:
- Popular fast-food chain shuts locations, no bankruptcy plans yet
- Iconic retail food company closing down, no bankruptcy filing yet
- Bankruptcy filing can’t rescue popular retail food brand
American Tire Distributors' ad hoc lender group, representing 90% of the outstanding debt on its prepetition term loan, includes credit funds and accounts managed by Guggenheim Partners Investment Management, LLC; KKR; Monarch Alternative Capital LP; Sculptor Capital Management, Inc.; and Silver Point Capital, L.P.
The debtor blamed soaring inflation after the Covid-19 pandemic and a decline in demand for auto products beginning in 2022 for its financial distress, following a tire boom in 2019-2021, according to a declaration from the company's chief restructuring officer, Ronald J. Bienias.
The tire boom prompted the company to expand its business, but profits began declining in 2022 and 2023 because of new market headwinds that included customers adjusting to less expensive tires, depression of consumer demand, increased operating costs, and a contraction of sales channels.
American Tire Distributors in May 2024 marketed itself for sale and received a nonbinding letter of intent in June 2024, but it was terminated on Oct. 9, 2024.
Under the restructuring support agreement, the prepetition lenders will credit bid as stalking-horse bidder all amounts owed to them under the new money DIP claims, any amounts rolled up under the DIP loan, and all prepetition term loan claims in a Section 363 bankruptcy auction.
American Tire Distributors was founded in 1935 in Lincolnton, N.C., as Heafner Tire and continued growing as a family-owned company until it sold majority ownership to private equity investors in 1999. The company changed its name to American Tire Distributors in 2002.
The company sells and delivers a variety of tire brands to retailers, including General, Uniroyal, BF Goodrich, Continental, Michelin, Cooper, Pirelli, Yokohama, Hankook, Kumho, Nexen, and Toyo-Nitto. The company announced in 2018 that Goodyear Tire & Rubber was no longer one of its distributors.
Related: Veteran fund manager sees world of pain coming for stocks
