Toronto, Ontario -- One of the best-known auto parts companies in the U.S. is cutting down on its stores and raising capital to service a growing debt problem.
Advance Auto Parts, the company behind Carquest stores, is closing hundreds of locations and raising more than US$1.5 billion to deal with its growing debt.
The move was announced after a major credit agency downgraded Advance’s financial rating. Earlier this month, S&P Global lowered the company from a BB+ grade to a BB grade. The decision was made because the company's debt was more than six times higher than its yearly earnings before interest and taxes -- a ratio investors would generally consider precarious.
To stay afloat, Advance is borrowing more money by selling what are called unsecured notes to investors. These are a kind of loan that doesn’t require any collateral. The total being raised is US$1.5 billion, split into two parts -- or tranches -- with one due to be paid back in 2030 and the other in 2033.
At the same time, the company is changing the terms of its old credit agreement with banks. It’s replacing a US$1.2 billion credit line with a new one worth US$1 billion. That’s like swapping an old credit card for a new one, with different interest rates and rules. The new deal allows Advance to count more of its cash and restructuring costs when banks check whether it’s meeting borrowing terms.
Advance has already announced plans to shut down more than 500 of its own stores and more than 200 independently owned Carquest locations in Canada and the U.S. It’s also closing four warehouses. These moves are part of a cost-cutting strategy that began last year and is expected to continue into 2025.
Investors reacted with some optimism to the restructuring plan. After the US$1.5 billion funding move was announced, Advance’s share price climbed nearly seven percent.
