American Tire Distributors Inc. was upgraded by Moody's to Caa1 and a stable outlook, from Caa3 and a negative outlook, as the company's operations have pointed to positive free cash flow and better liquidity than earlier in the year. The company's first-lien first-out term loan was also raised to Caa1 from Caa3, and its first-lien second-out term loan was elevated to Caa2 from Ca.

Moody's said American Tire has managed demand volatility in 2020 "effectively," with the company's single-digit improvement in units shipped "well-ahead of" replacement tire shipments for the broader U.S. industry, which through the first nine months of the year is running down roughly 10% compared to 2019. Moody's also noted that the company has a "strong market position" as a distributor of consumer replacement tires with a national footprint.

The rating agency anticipates that cost savings initiated in 2020 will carry over into 2021, including having optimized network routes and rationalized its sales force. That should result in improved operating margins and reduced leverage, ending at around mid-6x debt-to-EBITDA by the end of 2021. Moody's believes the company's liquidity is "adequate" through 2021, while both 2020 and 2021 free cash flow are expected to be positive.

Huntersville, N.C.-based American Tire is a wholesale distributor of tires, custom wheels and related tools. After going through a bankruptcy in 2018, the company is owned by a consortium of investors.