By Jim Utter
Director of Journalism
ZIPS Car Wash secured approval of its Chapter 11 bankruptcy plan, overcoming an objection from the U.S. Trustee.
Judge Michelle V. Larson of the U.S. Bankruptcy Court for the Northern District of Texas gave final approval last Friday afternoon to ZIPS’ reorganization plan after overruling the U.S. Trustee’s office’s arguments against the plan’s claims releases for third party creditors.
The approval paved the way to hand ZIPS over to a group of its lenders and cancels approximately $279 million in old loans.
ZIPS, one of the country’s largest privately held car wash operators, voluntarily filed for Chapter 11 bankruptcy in early February in hopes of greatly reducing its debt obligations. The company also operates brands Rocket Express Car Wash and Jet Brite Car Wash.
The company’s bankruptcy exit comes after negotiations with lenders including HPS Investment Partners, PennantPark Investment Corp., and Brightwood Capital Advisors. The company also sought rent concessions from landlords amid a cash crunch and sold off some sites.
At the time of the original court filing, ZIPS had $654 million of total funded debt. Through the plan, ZIPS expected to reduce its debt obligations by approximately $279 million and secure $15 million of new capital to support the restructured business and “future strategic initiatives.”
As recently as last June, Atlantic Street had invested an additional $70 million in the company. The private equity firm, which focuses on smaller middle-market companies, first invested in ZIPS in May 2020 and increased its investment again in 2022.
ZIPS, headquartered in Plano, Texas, was founded with its first site in Arkansas in 2004, and now operates approximately 260 locations across 23 states under its three brands.
A recent case study published by FOCUS Investment Banking, “Washing Away Debt: ZIPS Car Wash and the Cost of Private Equity Ambition” took an analytical dive into the factors which drove the ZIPS bankruptcy.
It found three key areas behind ZIPS’ downfall: ZIPS’ failure to effectively manage its floating rate debt as interest rates climbed; its increased operating costs from inflation which squeezed profit margins; and the oversupply of car washes and a failure of ZIPS to account for site quality and market saturation while expanding.
