Private Credit Lenders Take the Wheel: Zips Car Wash's Turnaround Opportunity

As the car wash industry navigates challenging consumer trends, one of the largest privately held operators, Zips Car Wash, finds itself in a critical juncture. The company, backed by Atlantic Street Capital, has filed for Chapter 11 bankruptcy, paving the way for private credit lenders to take the reins and steer the business towards a successful turnaround. This article explores the strategic moves private credit lenders can make to maximize Zips' value and the broader implications for the car wash industry.

Zips Car Wash, with over 270 locations across 20+ states, has been grappling with financial distress, leading to discussions between lenders and the company's financial sponsor, Atlantic Street Capital. The lenders, advised by Paul Hastings and AlixPartners, aim to take control of the business and implement a restructuring plan that reduces Zips' debt obligations by approximately $279 million and secures $15 million of new capital (Source: Zips Car Wash's announcement on February 5, 2025).

To maximize Zips' value under new ownership, private credit lenders should consider the following strategic moves:

1. Debt restructuring and reduction: The lenders have agreed to a restructuring plan that significantly reduces Zips' debt obligations. This move aligns with their investment philosophy of providing capital to companies in need of restructuring, as seen in the case of Joann, where creditors pushed for a quick sale to maximize value (Source: "Bankrupt craft retailer Joann is 'way more likely' to liquidate and fire 19,000 workers if the company must find a buyer in less than 30 days, out-of-the-money creditors told a judge overseeing the insolvency case.").
2. Infusion of new capital: The lenders are expected to secure $15 million of new capital to support the restructured business and future strategic initiatives. This move aligns with their investment philosophy of providing additional capital to support the growth and turnaround of distressed companies, as seen in Atlantic Street Capital's additional $70 million investment in Zips in 2024 (Source: "Atlantic Street Capital Invests Additional $70 Million in Zips Car Wash").
3. Operational optimization: The lenders, along with Zips' management, can work together to optimize the company's operational footprint, right-size its portfolio, and improve overall efficiency. This aligns with their investment philosophy of supporting operational improvements and business transformations, as seen in AlixPartners' involvement in a turnaround capacity for Zips (Source: "Paul Hastings is advising lenders on the talks and AlixPartners is also involved in a turnaround capacity, the sources continued.").
4. Maintaining customer and employee satisfaction: The lenders can ensure that Zips continues to operate in the ordinary course of business, maintaining its customer and membership proposition, and honoring obligations to vendors and employees. This aligns with their investment philosophy of supporting companies that prioritize customer satisfaction and employee retention, as seen in Zips' commitment to delivering exceptional service to its valued customers (Source: "ZIPS has filed a number of customary 'first day' motions with the Court to facilitate a smooth transition into chapter 11 and operate in the ordinary course, including continuing to pay employee wages and benefits, maintaining customer programs, and honoring obligations to vendors.").
5. Lease negotiations and rent concessions: The lenders can work with Zips to secure rent concessions from landlords and negotiate favorable lease terms, as Zips had previously sought rent concessions to avoid running out of cash (Source: "Zips Car Wash is seeking rent concessions from landlords as it runs out of cash, according to people with knowledge of the matter."). This aligns with their investment philosophy of supporting companies in reducing their operating expenses and improving their financial health.

The acquisition of Zips Car Wash by private credit lenders is likely to have several impacts on the broader car wash industry. Market consolidation, increased competition, shifts in industry standards, potential for new entrants, and challenges in maintaining customer loyalty and market share are all potential outcomes that could shape the future of the car wash industry (Source: Information from February 6, 2025).

In conclusion, the strategic moves made by private credit lenders to maximize Zips Car Wash's value post-bankruptcy align with their investment philosophies focused on debt restructuring, capital infusion, operational optimization, customer satisfaction, and cost reduction. The broader implications for the car wash industry include market consolidation, increased competition, shifts in industry standards, potential for new entrants, and challenges in maintaining customer loyalty and market share. By considering these factors, investors can make a more informed evaluation of the potential for a successful turnaround and long-term growth of Zips Car Wash under new ownership.