American Tire 4Q20 and 2020 earnings rise, market awaits potential debt deal

American Tire Distributors (ATD) booked modest gains in revenue and adjusted EBITDA for 4Q20 and full-year 2020 as it continued to exercise cost controls during the COVID-19 pandemic, according to two sources familiar with the situation. 

For the quarter, ATD generated USD 1.35bn in revenue, versus USD 1.31bn recorded in 4Q19. In tandem, the wholesale tire distributor clocked in USD 74.2m in adjusted EBITDA for the three months, compared to USD 70.6m in the same period the prior year, the sources said.

In 2020, revenue came in at USD 4.79bn, versus USD 4.71bn in 2019. Meanwhile, adjusted EBITDA for the year totaled USD 212.6m, compared to USD 182m in 2019, they continued. 

With around USD 1.54bn of total debt, ATD ended the year levered at roughly 7.2x.

The issuer filed for Chapter 11 protection in October 2018 after losing material contracts with Goodyear Tire & Rubber Company and Bridgestone. It emerged with a bankruptcy plan just 10 weeks later that allowed for the reinstatement of the company’s term loans, while prepetition unsecured noteholders took control of ATD’s equity. 

ATD disclosed in its earnings release that it replaced its lost Goodyear and Bridgestone business with new contracts in the second half of 2020, one of the sources said. 

For 2021, Moody’s Investors Service expects the borrower’s 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 area by the end of the year. The company is also projected to generate roughly USD 30m of free cash flow this year, after rightsizing capital expenditures and incurring some deferred cash costs from 2020, the agency noted in a credit report published in December.

As of 31 December, ATD’s liquidity totaled USD 250m through USD 24m of cash, USD 115m of availability on its US ABL and USD 111m of availability on its Canadian ABL.

In February, the company put out feelers for a new debt raise with a non-deal roadshow led by Goldman Sachs.  At the time, investors thought the borrower could look to refinance existing loan debt to reduce its cost of capital, as reported. 

Subsequently, Goodyear announced on 22 February that it entered into an agreement to buy ATD supplier Cooper Tire & Rubber Company in a deal valued at USD 2.5bn. 

ATD could wait to see the outcome of the Goodyear and Cooper Tire & Rubber Company transaction before launching an official deal, the sources noted. The target provides tires and other products to ATD and so a transaction could impact the issuer, they said.

ATD’s USD 795m Libor+ 750bps first lien term loan due 2024 is quoted this week in the 97.542/98.458 context, down from March’s high of 98.127/98.793, but up from a low of 84.4/86.9 on 30 October, according to Markit.

In addition to the TL and outstanding ABL debt, ATD also has a USD 150m L+ 600bps exit FILO term loan due 2023, which is quoted in the 98.313/99.25 context, compared to quotes of 98.5/99.25 on 22 March.

ATD did not respond to a request for comment. 

2021 Debtwire

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