American Tire tests waters for debt raise with non-deal roadshow

American Tire Distributors is gauging investor interest via a non-deal roadshow led by Goldman Sachs, according to two sources following the situation. 

The company is likely looking to refinance its existing loan facility to reduce its cost of capital, the sources and an additional source said. 

As of 30 September, the company is 7.5x levered through USD 1.5bn of total debt and USD 210m LTM management EBITDA, one of the sources and another source said. 

American Tire filed for Chapter 11 protection in 2018 after losing major contracts with Goodyear Tire and Bridgestone. The bankruptcy plan allowed for the company’s term loans to be reinstated while prepetition unsecured noteholders converted to equity. 

ATD’s USD 795m Libor+ 750bps first lien term loan due 2024 is quoted this week in the 97.875/99.375 context, up from a recent low of 84.4/86.9 on 30 October, according to Markit.

The company’s performance for 2020 has outpaced Moody’s expectations, according to a December 2020 report from the ratings agency. Moody’s expects units shipped to show low-single digit growth for the full-year 2020 – ahead of replacement tire shipments for the broader industry in the US, which showed a decline of roughly 10% for the first nine months of 2020. 

The ratings agency said American Tire benefits from “solid underlying demand in its independent retail channel, although this demand has partially benefitted from mass merchandisers’ auto centers remaining closed for parts of the year.”

For 2021, Moody’s expects revenue to grow in the mid-single digit range, offset by demand volatility in the first half of 2021, with leverage drifting towards the mid-6x range by the end of the year. 

The company is also expected to generate roughly USD 30m of free cash flow in 2021, after rightsizing capital expenditures and incurring some deferred cash costs from 2020, the agency said. 

In addition to the TL due 2024, ATD also has a USD 150m L+ 600bps exit FILO term loan due 2023, which is quoted in the 97.375/99.375 context, compared to quotes of 94.026/95.4 in early December and a recent low of 91.8/93.8 on 29 October. 

American Tire and Goldman Sachs did not respond to requests for comment. 

2021 Debtwire

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