Huge national car wash chain files Chapter 11 bankruptcy | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

The retail sector has endured five years of macroeconomic headwinds that have forced certain retailers into financial distress and led to debt restructuring, reorganization of businesses, bankruptcy filings, and closings of operations.

In just the last year, major retail chains have filed for Chapter 11 bankruptcy protection, including fabric and crafts chain Joann, casual apparel chain Express, discount home goods chain Big Lots, and casual apparel chain Rue 21.

💸💰 Don’t miss the move: Subscribe to TheStreet’s free daily newsletter 💰💸

A more specialized retail sector, car wash chains, had some bankruptcy filings recently, but Chapter 11 filings for such businesses have been rare lately.

Fuller’s Car Wash, which operates 18 car wash sites in the Chicago area, filed for Chapter 11 bankruptcy protection on Jan. 29 facing an alleged wrongful death and negligence lawsuit related to the death of a 14-year-old youth outside one of its locations in July 2023, WGN-TV reported.

A Chapter 11 filing is subject to an automatic stay of all legal actions against the debtor while the Chapter 11 case proceeds.

Another larger car wash chain most recently filed for Chapter 11 protection because of financial distress.

Zips Car Wash files for a pre-negotiated Chapter 11 bankruptcy.

Zips Car Wash to hand company to lenders in bankruptcy

Huge national car wash chain Zips Car Wash LLC and nine affiliates filed for Chapter 11 bankruptcy with a pre-negotiated restructuring transaction that will reduce the debtor’s outstanding funded debt obligations by $279 million and hand 100% control in the company to its term loan lenders.

The plan will also eliminate millions of dollars of go-forward lease liabilities, and provide the company with a new $15 million revolving credit facility to fund operations after bankruptcy.

More bankruptcy:

The debtor will also issue $375 million in take-back debt.

The debtor seeks approval of an $82.5 million debtor-in-possession financing facility, which includes $30 million in new money from its existing secured lenders to finance operations during the bankruptcy case. The DIP loan is crucial to the company’s continued operations since it only had $1 million cash on hand when it filed for bankruptcy, according to a declaration by Zips’ Chief Transformation Officer Kevin Nystrom of AlixPartners.

The Plano, Texas-based company filed its Chapter 11 petition on Feb. 5 in the U.S. Bankruptcy Court for the Northern District of Texa. It listed $1 billion to $10 billion in assets and liabilities, including $653.9 million in funded debt and $299.8 million in preferred equity.

Zips Car Wash’s largest unsecured creditors include Sonny’s Enterprises, owed $3.16 million; Getty Leasing Inc., owed over $297,000; and Broadstone ZCW Portfolio, owed over $209,000.

The debtor, which operates over 260 locations in 23 states, blamed macroeconomic headwinds including:

Federal Reserve’s interest rate hikes in 2022 and 2023 that increased its interest expenses.
Labor shortages.
Increased labor costs].

Softened consumer discretionary spending led to an industry-wide decline in retail traffic.

Increased competition contributed to distress

Zips also faced increased competition with about 900 nationwide car wash site openings annually over the last five years. The company was burdened with unprofitable locations and off-market lease obligations that it could not effectively exit or renegotiate without filing for Chapter 11.

Those locations negatively impacted the company’s earnings, turnaround plans, and free cash flow, the declaration said. The company’s insufficient liquidity and impending debt maturity led to the debtor amending its credit agreement and seeking refinancing of its debt, which it could not complete.

The debtor sought restructuring advisers to turn around its operations, close and sell locations, and renegotiate lease terms. The debtor also met with its lenders to seek new capital and liquidity solutions but was unsuccessful.

The company determined its best option was to file Chapter 11 bankruptcy through a pre-negotiated plan and seek post-petition financing.

The company, founded in 2004, operates Zips, Jet Brite, and Rocket Express car wash brands that charge $12 to $30 for external-only tunnel washes. Retail washes account for one-third of the debtor’s revenue, while Unlimited Wash Club memberships, ranging from $20 to $45 per month, generate two-thirds of the company’s revenue.

The company generated about $303 million in annual revenue in 2024, according to court papers.