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American Tire Distributors Files for Chapter 11

Nation's Largest Replacement Tire Distributor To Consolidate Some of Its 122 Distribution Centers
October 10, 2018
The 1 million-square-foot 5000 Capital Road in the Wonderful Industrial Park in Shafter, California, is ATD Corp.'s largest and newest leased facility.



Facing the loss of almost 25 percent of its business, ATD Corp. filed to reorganize through Chapter 11 under U.S. Bankruptcy Court supervision, a move that may involve changes to its extensive tire distribution network across the United States.

ATD is the largest replacement tire distributor in North America based on dollar amount of wholesale sales and number of warehouses. It operates out of 122 distribution centers across the country under the names American Tire Distributors and National Tire Distributors.

The company's facilities average about 115,000 square feet, according to CoStar data, which could put its total square footage at roughly 14 million square feet. Its largest facility is a 1 million-square-foot facility in Shafter, California, on which it signed a 20-year lease just two years ago.

Recent trends toward disintermediation and online retail shopping have disrupted the replacement tire industry, according to a lengthy statement from William Williams, executive vice president and chief financial officer for ATD Corp., filed with the courts.

Specifically, last spring, Goodyear Tire & Rubber Co. and Bridgestone Americas - its two largest customers, representing about one-quarter of annual revenue - formed a joint venture distribution company called TireHub that would in-source distribution of their manufactured tires. Both said they would quit distributing through ATD.

Michelin North America Inc. and Sumitomo Corporation of Americas also disclosed that it would form a joint venture partnership in 2018 that would operate under the NTW brand. As of the Chapter 11 filing, however, Michelin and Sumitomo still supply products to ATD.

The in-sourcing of distribution is not the only headwind facing ATD, according to Williams. The two announcements came in the midst of retailers Amazon and Sears announcing they reached a deal to sell replacement tires online and have them installed at a Sears store location.

To address their financial difficulties from these challenges, ATD filed for Chapter 11 reorganization to reduce its debt by more than $1 billion.

ATD will be taking "significant steps to evaluate and implement cost reduction initiatives," Williams said. Those steps include streamlining its distribution network in oversaturated markets. However, ATD has asked the court to give it extended time to review which leases it intends to reject.

Multiple publicly offered real estate investment trusts are landlord to American Tire Distributors including Industrial Logistics Property Trust, with ATD taking 722,000 square feet and Stag Industrial, which leases four locations to ATD.

Both REITs were asked about American Tire during their last quarterly earnings conference calls following the announcement from Goodyear and Bridgestone.

"ATD is still a viable going concern and they occupy a number of buildings within our portfolio," said Ben Butcher, chief executive of Stag. "But those buildings are very fungible. We are very happy with the real estate and not overly concerned about ATD or the prospects for those buildings should ATD depart them at some point in the future."

John Popeo, president, of Industrial Logistics, echoed a similar sentiment.

"The news reports indicated that they may have lost a couple of key names or tire manufacturers, but this is a large company. It's got a big reach. It's got a lot of distribution facilities throughout the country," Popeo said. "There's nothing that would lead us to believe that this tenant will vacate our properties. But regardless, we have a good handle on the market condition in the five markets that these properties are located. And they're all pretty good markets."

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