American Tire Distributors’ debt took a deep dive Wednesday after Bridgestone Americas announced it would pull the distribution of its passenger and light truck tires from the company.
“The company’s subordinated notes maturing in 2022 fell after the news to trade about 25 cents on the dollar midday,” the Financial Times reported. “The company’s term loans fell sharply as well, trading below 75 cents of the dollar.”
On Thursday, Moody’s Investors Service again placed its ratings for American Tire Distributors, Inc. (ATD) under review for a downgrade after Bridgestone’s announcement.
Its ratings under review include the company’s Caa2 Corporate Family Rating (CFR) and Caa3-PD Probability of Default Rating, as well as the Caa1 and Caa3 ratings for the company’s senior secured term loan and senior subordinated notes, respectively.
The review is the second Moody’s has conducted since April. The investor services company downgraded ATD’s rating in May citing “unsustainable capital structure” after a review following the announcement of the TireHub deal, a joint venture which allows Goodyear Tire & Rubber Company and Bridgestone Americas to unite their wholesale distribution operations to form one of the largest tire distribution ventures in the U.S.
“The magnitude and timing of earnings and cash flow erosion following the loss of two prominent suppliers will be more severe and immediate than previously envisioned,” according to Inna Bodeck, Moody’s lead analyst covering the company. “This latest development further evidences the ongoing shift in the approach of premium tire manufacturers to the evolving marketplace, and ultimately represents an incremental resizing of the tire distribution channel.”
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Regarding Bridgestone’s announcement, an ATD spokesperson said in a statement Wednesday that “we are disappointed by Bridgestone’s decision to no longer use ATD as a distributor of their products in the United States, which we believe limits consumer choice.”
“ATD remains the nation’s premier tire distributor as well as the largest independent supplier of tires to the replacement tire market. Importantly, ATD continues to generate substantial cash flows and as of May 31, 2018 had approximately $300 million of liquidity. We have a loyal base of customers and manufacturer partners with whom we are continuing to work as we always do,” the statement read. “Our value proposition continues to strengthen as we execute our strategy. Our industry is evolving and we are been bringing game-changing innovation – including digital tools, programs and technical support – that will make us the most connected and insight-driven automotive solutions provider in the industry.
“We have been and will continue to take steps to meaningfully offset the potential impact of Goodyear and Bridgestone’s actions. To us, it’s all about keeping the power of choice alive, and we look forward to continuing to support our customers and manufacturer partners like no one else can.”
This article will be updated as more information is provided.