Moody’s Investors Service has placed its ratings for American Tire Distributors under review for downgrade, including 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 decision follows Bridgestone’s announcement that it is discontinuing its relationship with ATDI following approval of the TireHub, a joint venture between Bridgestone and Goodyear
“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,” added Bodeck
Moody’s review for downgrade reflects the risk that ratings will be lowered following Bridgestone’s announcement that it is discontinuing its partnership with the company, and that ATD’s fundamental creditworthiness is likely to erode more significantly than the rating agency had originally anticipated. Moody’s review will focus on the business and financial implications of this adverse development for ATDI, including the company’s top line, profitability, cash flow and liquidity measures. It will also focus on the company’s ability to act quickly and in a disciplined manner.