HUNTERSVILLE, N.C. — American Tire Distributors Inc. (ATD) has taken the second major step in the last six weeks to reduce costs, reaching an agreement in principle with holders of 70 percent of its bonds on terms of a recapitalization transaction. The move is expected to reduce the company's debt by up to $1.1 billion.
ATD, North America's largest tire distributor, said the agreement is subject to various conditions, including final documentation, and "will provide financial flexibility as it continues its ongoing transformation."
Once the reduction is complete, ATD's manufacturing partners and trade vendors are expected to be paid in full for existing obligations for goods and services.
In late July, ATD restructured its operations, eliminating 100 positions at its Field Support Center (FSC) in Huntersville as part of a new strategic plan. In addition, ATD said it would reinvest in 40 new positions.
ATD CEO Stuart Schuette said the firm's latest actions "are intended to reduce our debt and create financial flexibility so we can enhance the strategic initiatives, key technologies and talent that will drive our transformation forward.
"The agreement we reached with our bondholders reflects their confidence in our business and paves a way for us to implement our recapitalization on an accelerated basis," Mr. Schuette said. "We are confident in our future, and we look forward to keeping the power of choice alive and providing our customers the most connected and insightful automotive solutions in the industry."
ATD said it now has liquidity to meet business obligations, and it stressed that operations are continuing as normal throughout this process.
The Tire Pros marketing group, an ATD subsidiary, recently unveiled a major national campaign in order to drive traffic to its more than 745 locations. The new tools — ads for television and radio and social media videos — are part of a million-dollar marketing campaign designed to promote the group's new slogan: Hassle-free. Guaranteed.
"Our commitment to serving our customers — like no one else can — will not change as we move forward," Mr. Schuette said. "I want to thank all of our associates for their continued dedication and tireless efforts — they are a winning team — and our unparalleled selling and supply chain organizations are pivotal in helping our customers thrive and drive into the future."
Earlier this year, two of ATD's largest customers, Bridgestone Americas Inc. and Goodyear, announced they were discontinuing most or all their supply relationship with the tire distributor after the tire makers had launched their own distribution joint venture, TireHub L.L.C.
TireHub began operations on July 3.
Soon after losing two major customers, Moody's Investor Service Inc. questioned whether ATD has sufficient cash reserves to cover certain projected interest payments and maintenance costs in the near future.
Moody's said ATD must cut a significant amount of its cost, while replacing 40 percent of the revenue lost from the departures of Goodyear and Bridgestone, in order to cover projected annual interest payments and maintenance investments of $243 million.
It is unclear at this point how the debt restructuring affects Moody's forecast moving forward.
"Our journey over the past 18 months has been one of significant progress, and we are now taking steps to strengthen our financial position as we continue our transformation," Mr. Schuette said.
Chicago-based Kirkland & Ellis L.L.P. is serving as legal counsel to ATD, while global consulting firm AlixPartners L.L.P. is an operational advisor. Investment banker Moelis & Co. L.L.C. is serving as financial advisor.