In the wee hours of Thursday, Oct. 4, 2018, American Tire Distributors Inc. (ATD) sent out a press release announcing it was reorganizing under United States Bankruptcy Code protection. To read about the announcement, click "ATD Voluntarily Files for Chapter 11 Reorganization."
CEO Stuart Schuette also sent out a letter to ATD associates. Here is the the letter, including answers to frequently asked questions, in its entirety.
Dear Team:
I’m writing today with an important update about our company. We are moving forward on a clear and expedited path to strengthen our financial position and continue our successful, game-changing transformation.
Since announcing in early September that we had entered into an agreement in principle with our bondholders, we’ve held discussions with our stakeholders to finalize the agreement. Throughout this process, we have continued to receive support from both our customers and manufacturer partners. They are pleased with the progress we are making to reduce our debt and strengthen our company. Your hard work and focus during this time has been critical and I would like to thank you for your keeping us moving forward.
Today we are announcing a positive, intentional and strategic next step in the process of making ATD stronger than ever. We have entered into a definitive agreement with approximately 75% of our bondholders that would reduce the company’s debt by up to $1.1 billion and provide us with financial flexibility as we continue our ongoing transformation. To facilitate the agreement, we have voluntarily commenced a court-supervised process under Chapter 11 of the U.S. Bankruptcy Code. Our National Tire Distributors and other Canadian subsidiaries are not part of the court-supervised process and continue to serve customers as they always have.
It is very easy to get lost in all of the technical and legal jargon. To keep it simple, here are the key things you need to know about what this means for our business and for you:
* We are open for business and taking care of our customers and supporting them across all channels, as well as the consumers they serve.
* Your pay and benefits will not be impacted. You will be paid as you always have and your benefits are there for you and your family.
* We’re counting on your commitment to continue providing customers the high-quality service they expect from our company.
Looking ahead, we intend to move through this process as quickly as possible. The strong support of our bondholders will allow us to do so on an accelerated basis. We have momentum and are continuing our efforts to lead change in the industry.
We look forward to continuing to introduce innovative technology, new programs and tools over the coming months to help customers drive traffic to their business, enhance their operations and maximize their profitability. Our company has seen many changes to the tire industry over the past 80 years, and we have always succeeded by remaining focused on supporting our customers across all channels, and the consumers they serve.
Today’s announcement may result in more noise and misinformation in the marketplace. To ensure you have the latest and most accurate information, we will continue to provide timely updates about important milestones along the way. Throughout the day, we will be having team huddles where you will have the opportunity to speak with your team leaders and ask more questions about this announcement. Below are some FAQs that may help answer questions I’m sure you have right now.
Going forward, we will be sure you have the resources that you need to easily speak with your customers and external contacts. If you or the stakeholders you support have any questions, please do not hesitate to reach out to your leader. Your leaders are here to support you through this time.
I am grateful for your hard work, steadfast support and dedication to our company. Your passion is inspiring and on behalf of the entire management team, thank you for all you do for ATD.
Sincerely,
Stuart
FAQs
1. What did ATD announce?
We are taking a positive, intentional and strategic next step in the process of making ATD stronger than ever.
We entered into a definitive agreement with approximately 75% of our bondholders that would reduce the company’s debt by approximately $1.1 billion and provide us with financial flexibility as we continue our ongoing transformation.
To facilitate the agreement, we have voluntarily commenced a court-supervised process under Chapter 11 of the U.S. Bankruptcy Code.
ATD is continuing to serve customers as we always have and intends to work with our vendors as normal.
National Tire Distributors and our other Canadian subsidiaries are not part of the court-supervised process and continue to serve customers as they always have.
2. What is Chapter 11?
Chapter 11 is a section of the U.S. Bankruptcy Code that allows companies to implement financial restructurings through a court-supervised proceeding while continuing to operate their businesses in the ordinary course.
This is a procedural event to move us through the recapitalization and become an even healthier business in the next few months.
Chapter 11 is very different from Chapter 7 and other types of bankruptcy, where the focus is on liquidating a company and going out of business. ATD is not going out of business. Our company will be even stronger after this process is complete.
Under a Chapter 11 filing -- unlike a Chapter 7 filing -- management remains in control of the business and the company operates as normal.
In Chapter 11, companies continue to make payroll and handle benefits, make payments to vendors for goods and services and take care of other obligations.
Many companies have successfully utilized Chapter 11, including General Motors, Chrysler, Delta Airlines and Macy’s.
3. Why did ATD have to take this action?
ATD is moving forward on a clear and expedited path to strengthen our financial position and continue our successful, game-changing transformation. These decisions were made intentionally and ATD is excited about our future.
The actions ATD is taking will enable it to keep the power of choice alive for our customers.
Our company has seen many changes to the tire industry over the past 80 years, and we have always succeeded by remaining focused on supporting our customers across all channels, and the consumers they serve.
4. Is ATD going out of business?
No. We’re a company that is built to last. ATD has a strong foundation built on our unparalleled network, unique service offerings, and deep relationships with customers and manufacturer partners coupled with a game-changing transformation under way to evolve our business as our industry continues to change.
In short, we are open for business and taking care of our customers and supporting them across all channels, and the consumers they serve.
Our manufacturer partners are with us, our customers are loyal and we are continuing to pay our associates and provide benefits as normal.
This process will help make us a stronger company and enable us to keep the power of choice alive for our customers.
5. Will the court-supervised process affect day-to-day operations?
We are open for business and taking care of our customers and supporting them across all channels, and the consumers they serve.
Deliveries are continuing without interruption. We have strong relationships with our manufacturer partners and will continue to provide customers with more selection, wider and more timely availability and easy access to a complete package of tires, wheels and shop supplies.
6. Does ATD have enough money to continue operating through this process?
Yes. We fully intend to pay our vendors in full under normal terms for goods and services provided on or after the filing date. Our agreement also provides for manufacturer partners and trade vendors will remain unimpaired by the process, provided a return to ordinary trade terms.
And of course, all of our associates will be paid as normal as well.
7. Did ATD receive new financing?
In connection with the court-supervised process, ATD has received commitments that would provide continued access to our credit facility plus $250 million in new financing.
Upon approval by the court, this new financing will be used to support the business through the financial restructuring process.
8. What is a prearranged process?
A prearranged Chapter 11 process is one in which the company uses the court-supervised process to implement the terms of an agreement it has already reached with creditors on a reorganization plan.
A prearranged process is simpler and faster than if the company simply filed for Chapter 11 with no support from its creditors.
In our case, we initiated the court-supervised process to implement our agreement in principle we previously disclosed with more than 75% of our bondholders.
Because of the agreement we have with our bondholders, we will be able to move through this process quickly.
9. What is the difference between a prearranged plan and a prepackaged plan?
In a prearranged process, the company needs to solicit the approval of all of its creditors on its Plan of Reorganization after Chapter 11 filing, which must then be approved by the Bankruptcy Court.
In a prepackaged process, the company secures the approval of its creditors on its Plan of Reorganization before filing for Chapter 11.
10. Will any of ATD’s facilities or distribution centers close?
We are open for business and taking care of our customers and supporting them across all channels, and the consumers they serve.
Decisions regarding our footprint will continue to be based on the needs of the business.
11. Will ATD senior management remain in place?
The current senior management team remains in place and is committed to leading ATD through the court-supervised process.
12. When do you expect to complete the court-supervised process?
While we can’t provide a specific date on which we will emerge, we intend to move through this process as quickly as possible.
The strong support of our bondholders will allow us to complete the court-supervised process on an accelerated basis.
13. How does this affect associates?
Associates should expect to not be affected by this process. We are open for business and taking care of our customers and supporting them across all channels, and the consumers they serve.
Your pay and benefits will not be impacted. You will be paid as you always have and your benefits are there for you and your family.
We are counting on associates to continue providing customers the high-quality service they expect from our company.
14. Should associates continue to come to work?
Yes. Associates should continue to report to work as scheduled.
15. Will associates continue to be paid as usual?
Yes. Your pay and benefits will not be impacted. You will be paid as you always have and your benefits are there for you and your family.
16. Will this affect associate benefits?
Your pay and benefits will not be impacted. You will be paid as you always have and your benefits are there for you and your family.
17. Will associates lose any accrued benefits, such as vacation time?
No. We will continue our usual vacation policies and will honor any unused vacation time an associate may have accrued before the filing, in accordance with current company policies.
18. Is ATD’s 401(k) plan affected by this court-supervised process?
No. The funds in your 401(k) are protected under federal law. Associate contributions to 401(k) accounts will continue in the same manner as they have prior to the filing.
Associates can continue to make personal contributions, unless they personally elect to make changes.
All current 401(k) plan features will remain in effect.
19. Will ATD continue to company match for its 401(k) plans?
ATD’s matching contributions to associates’ 401(k) accounts are not affected as a result of the court-supervised process.
If any changes to the company match for the 401(k) plan are made, associates will be notified in a timely manner.
20. Will there be layoffs as a result of the court-supervised process?
There will be no layoffs as a result of the Chapter 11 filing.
As always, decisions on our capabilities will continue to be based on the needs of the business.
21. Will I be reimbursed for any expense reports submitted prior to filing?
Yes. Associates will be reimbursed for all business-related expenses submitted in accordance with our pre-existing policies and procedures for expense reimbursement.
Please reach out to your leader with any questions you may have on this.
22. How can management handle this court-supervised process while also effectively running the business?
A core group of the management team is working with a team of well-respected and talented experts to help us with this process. While they have been focused on our recapitalization, our company has been converting business, winning new accounts, and building its capabilities as part of ATD’s transformation.
Our management team remains focused on supporting our customers across all channels, and the consumers they serve.
23. How will our customers be affected?
We are open for business and taking care of our customers and supporting them across all channels, and the consumers they serve.
We have strong relationships with our manufacturer partners and will continue to provide customers with more selection, wider and more timely availability and easy access to a complete package of tires, wheels and shop supplies.
Our commitment to innovation and serving our customers is unwavering. Everything we are doing continues to be driven by three customer-focused objectives: driving store traffic, enhancing customer operations and maximizing customer profit.
24. How will our vendors or manufacturing partners be affected?
We intend to work with our vendors and manufacturer partners as normal.
The company intends to pay suppliers and vendors in full under normal terms for goods and services provided on or after the Chapter 11 filing date.
25. Is there anything associates can do to help?
The best way associates can help is by continuing to provide customers the high-quality service they expect from our company.
We are moving forward on a clear and expedited path to strengthen our financial position and continue our successful, game-changing transformation.
Our company has seen many changes to the tire industry over the past 80 years, and we have always succeeded by remaining focused on supporting our customers across all channels, and the consumers they serve.
26. Throughout the past several communications we have not used the word bankruptcy, only the possibility of negative press, did this surprise us?
No. Initiating this process was intentional and strategic.
27. What is Chapter 11 bankruptcy? How is this different from Chapter 7?
Chapter 11 is a compilation of provisions of the U.S. Bankruptcy Code that allows companies to implement financial and operational restructurings through a court-supervised proceeding while continuing to operate their businesses. That’s what companies like General Motors, Chrysler, Delta Air Lines and Macy’s have done. We’re doing the same thing.
28. When my spouse/family asks what the impact is to me personally, what should I tell them?
You should tell them that we are open for business and taking care of our customers and supporting them across all channels, and the consumers they serve. That you have a job and that you’ll be receiving pay and benefits as normal. And that we’re counting on you to keep doing an excellent job.
29. Will my bonus or commission be impacted?
Your pay and benefits will not be impacted. You will be paid as you always have and your benefits are there for you and your family.
30. Who owns the company… it used to be Ares/TPG, who is it now?
Under the terms of our agreement, our bondholders’ debt holdings will be converted to equity interest in ATD, and our bondholders will become the majority owners of the company when this process is complete. TPG and Ares will retain an equity ownership position as well and will continue to serve on our Board.
31. How can associates obtain more information?
You can find additional information on our restructuring website, www.ATDrecapitalization.com.
If you have a specific question, you can continue to reach out to your leaders.
