American Tire Said to Plan Junk Bonds as TPG Sells Stake to Ares

American Tire Distributors Inc. will tap the junk-bond market for $805 million of junior debt, according to Standard & Poor’s, with some of the proceeds used to pay a dividend to majority owner TPG Capital LP as it sells about half its stake to Ares Management LP.

The North American tire distributor announced the Ares deal in a statement on Tuesday, saying that the asset manager and TPG would have “equal ownership.” It didn’t provide further details. S&P said TPG would sell about 48 percent of its stake to funds associated with Ares, which would make an equity investment of $620 million in Huntersville, North Carolina-based American Tire.

Bill Mendel, spokesman for Ares, declined to comment beyond the press release. Owen Blicksilver, spokesman for private-equity firm TPG at Owen Blicksilver Public Relations Inc., also declined to comment.

S&P said proceeds from the subordinated note issue would help fund a $370 million dividend to TPG and would also be used to refinance $425 million of 11.5 percent junior notes due in June 2018. The ratings company reduced its corporate grade on American Tire to B from B+, saying the added debt will shift the company’s financial risk profile to “highly leveraged” from “aggressive.”

‘Negligible Recovery’

The new bonds received a CCC+ rating from S&P, which said investors could expect “negligible recovery” of no more than 10 percent after a payment default.

Moody’s Investors Service affirmed its B2 rating on American Tire and assigned a Caa1 grade to the new debt, both equivalent to the S&P rankings. Moody’s said the company’s debt was elevated after a “sizeable debt-financed acquisition program” last year.

Besides the bonds, American Tire has about $1.5 billion of loans maturing by 2018, Bloomberg data show.

American Tire acquired Integra Tire, a Canadian company, last month, according to data compiled by Bloomberg. It purchased at least seven other tire distributors for more than $850 million last year, according to a Nov. 14 regulatory filing.

ATD Corp., a unit of TPG that indirectly owns American Tire, filed for an initial public offering in June, Bloomberg data show. S&P said in a Jan. 12 statement that the IPO was planned for February. TPG acquired American Tire from a consortium led by Berkshire Partners for $1.3 billion in 2010.

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