Zips Car Wash filed for Chapter 11 bankruptcy protection on February 5, 2025, in the United States Bankruptcy Court for the Northern District of Texas with just $1 million in cash and $654 million in funded debt. The Plano-based operator of 260 locations across 23 states marked one of the biggest bankruptcies in the private credit space, despite generating $303 million in annual revenue and maintaining 625,000 subscription members.

The filing culminated Atlantic Street Capital's unsuccessful efforts to salvage its 2020 investment after injecting over $108 million in rescue financing through 2024. The company succumbed to rising interest rates, labor costs, and intense competition as approximately 900 new car wash sites opened annually nationwide.

Business Model and Operations

Zips operated as a major consolidator in the fragmented car wash industry, serving 24 million cars annually with 1,800 employees. The company's express wash model processed up to 140 cars per hour through automated tunnels, capturing the industry's shift from do-it-yourself to do-it-for-me service.

Revenue derived from two primary sources: retail washes at $12-30 per visit and the Unlimited Wash Club launched in 2013. The subscription service charged $20-45 monthly and generated over two-thirds of total revenue. Membership grew from 1,080 per site in May 2020 to 2,250 per site by June 2024.

The company operated three brands, Zips Car Wash, Rocket Express, and Jet Brite, maintaining strong market share across its footprint. The Zips brand represented the majority of locations with standard tunnel configurations, while Rocket Express operated five mega-sites in Idaho and Utah featuring longer tunnels and higher throughput capacity. Jet Brite's 12 Illinois locations provided regional density in the competitive Chicago market. Despite scale advantages in supplier negotiations, particularly with primary vendor Sonny's Enterprises for chemicals and equipment, and standardized operations across the portfolio, these operational efficiencies proved insufficient against the debt burden accumulated through aggressive acquisition financing.

The subscription-based revenue model that drove Zips' growth reflected broader industry trends toward recurring revenue streams. Members received unlimited monthly washes for a fixed fee, with the ability to wash up to twice daily at any location within the network. This model provided predictable cash flow, reduced customer acquisition costs, and increased lifetime value compared to single-wash transactions. The technology infrastructure supporting the subscription program, including license plate recognition and mobile app integration launched in 2024, represented significant capital investments that further strained the balance sheet during the company's financial distress.

Financial Distress and Sponsor Support

Atlantic Street Capital acquired majority control in 2020 with plans to build a national car wash platform through strategic acquisitions. By 2022, the sponsor had increased its stake by purchasing remaining equity from founding shareholders.

Atlantic Street attempted multiple rescue efforts as performance deteriorated:

These investments totaling over $108 million failed to stabilize operations as external pressures mounted. Inflation, labor shortages, and softened discretionary spending eroded margins while rising interest rates increased debt service costs.

Market saturation intensified competition. Approximately 900 new car wash sites opened annually nationwide, including 936 in 2021 and 943 in 2022, forcing aggressive price competition particularly in Zips' southeastern markets.

Hurricane Helene impacted over 120 locations in September 2024, with some North Carolina sites, particularly in Asheville, closed for months. The natural disaster disrupted operations across Florida, Georgia, and the Carolinas, causing millions in lost revenue and property damage while accelerating membership cancellations in affected regions. Insurance recoveries lagged operational needs, further straining working capital during the critical fourth quarter.

Combined with an inflexible lease portfolio containing numerous above-market rates and unfavorable renewal terms, the company's fixed cost structure became unsustainable. Many leases originated during the 2020-2022 acquisition spree when competition for prime locations drove rental rates to historic highs. With term loans maturing on December 31, 2024, the company faced an immediate liquidity crisis that forced the February 2025 filing despite lender forbearance agreements negotiated in March 2024 through Amendment No. 24.

The company's attempts at operational turnaround included the ZipsMe 2.0 program implemented in 2023 to standardize service quality and establish national pricing models. Project Refresh, launched in 2024, focused on refurbishing existing sites to drive traffic, while the new Zips mobile app aimed to improve customer engagement and reduce churn. These initiatives required capital expenditures the overleveraged company could not afford, creating a vicious cycle where deferred maintenance led to declining customer satisfaction and accelerating membership cancellations.

Restructuring Transaction

Zips filed with a pre-negotiated plan backed by 100% of lenders and shareholders to reduce funded debt by $279 million through a debt-for-equity swap. The company secured $82.5 million in DIP financing including $30 million in new money, with milestones requiring plan confirmation by April 11, 2025.

The reorganized capital structure comprised a $150 million HoldCo facility, $225 million OpCo facility, and $15 million revolver—totaling $390 million versus $654 million pre-petition. The company rejected leases on 41 locations to eliminate unprofitable sites.

Kirkland & Ellis and Gray Reed served as debtor counsel, with Evercore as investment banker and AlixPartners as financial advisor. Kevin Nystrom of AlixPartners served as Chief Transformation Officer beginning in September 2024, leading the pre-filing negotiations. Paul Hastings represented the lender group taking control through the restructuring, while Sidley Austin advised senior preferred equity holders on potential new money solutions that ultimately did not materialize.

The pre-negotiated nature of the filing allowed for expedited court proceedings and minimal operational disruption. The company filed with a restructuring support agreement already executed by key stakeholders, eliminating the need for contested plan negotiations. Critical vendor motions ensured continuity of chemical supplies and equipment maintenance, while the DIP facility provided liquidity for payroll and lease obligations during the case. The aggressive timeline reflected concerns about customer retention, as extended bankruptcy proceedings historically correlate with significant membership attrition in subscription-based businesses.

Beyond financial restructuring, the company implemented operational changes including the divestiture of underperforming markets. A sale of Orlando locations closed on February 4, 2025, one day before the bankruptcy filing, while a separate transaction for St. Louis sites remained pending at petition date. Hilco Real Estate conducted site-level evaluations in November 2024 to identify closure candidates and renegotiation opportunities, ultimately recommending the rejection of 41 locations representing approximately 16% of the pre-petition footprint.

Stakeholder Outcomes

Lenders took control through a debt-for-equity swap, wiping out Atlantic Street Capital's equity investment accumulated since 2020. The sponsor received releases for pre-bankruptcy actions while general unsecured creditors received no recovery.

Operations contracted from 260 to approximately 230 locations post-emergence, eliminating hundreds of jobs in underperforming markets. Pete Nani assumed the CEO role upon emergence, replacing prior management.

The 625,000 subscription members at 41 rejected locations faced service disruption, forcing relocations or cancellations. Members received communications about alternative locations within the network, though distance and convenience factors likely drove significant cancellations in affected markets. The company implemented service credits and promotional offers to retain members, recognizing that subscription revenue would remain critical to post-emergence viability. Customer data and membership management systems transferred seamlessly to the reorganized entity, preserving the technological infrastructure underpinning the subscription model.

Trade creditors faced complete losses on pre-petition claims estimated at tens of millions of dollars. Chemical suppliers, equipment vendors, and utility providers absorbed write-offs while critical vendors received priority treatment through first-day motions to ensure operational continuity. Landlords at continuing locations negotiated lease amendments as part of the reorganization, accepting reduced rents in exchange for maintaining tenancy at profitable sites.

Filing for bankruptcy rather than pursuing an out-of-court restructuring allowed the company to address preferred shares and reject leases more efficiently than consensual negotiations would have permitted. The Chapter 11 process provided statutory protections and court-supervised procedures that expedited the comprehensive restructuring necessary for long-term viability.

Industry Context and Implications

The Zips bankruptcy exemplified broader industry challenges as private equity firms discovered operating car washes profitably proved harder than anticipated. Major sponsors including Atlantic Street Capital, Oaktree Capital, KKR, and Warburg Pincus invested heavily betting on consolidation in a fragmented market where no single company controls more than 5% of industry revenue.

Market saturation from 900 annual new site openings forced aggressive price competition and margin erosion. Industry experts suggest "the explosion of growth for growth's sake is over," signaling a shift toward disciplined expansion.

Strong operational metrics—625,000 subscribers, $303 million revenue, 260 locations—could not overcome $654 million in acquisition debt when interest rates rose. The expedited 2-3 month bankruptcy enabled necessary deleveraging to $390 million while preserving operations.

The filing marked one of the biggest private credit bankruptcies, demonstrating how direct lenders increasingly use Chapter 11 to take control of overleveraged portfolio companies. The transaction highlighted valuation challenges in private credit markets, where mark-to-market discipline often lags deteriorating fundamentals. Lenders' willingness to provide DIP financing and take equity reflected recognition that liquidation values would prove minimal given the specialized nature of car wash assets and above-market lease obligations.

The reorganization of Zips with 230 locations will test whether consolidation remains viable in a saturated market demanding operational excellence over financial engineering. The company must demonstrate that subscription-based car washing can generate sufficient returns to justify continued investment despite intense competition and changing consumer preferences. Success metrics will include membership retention rates, same-store sales growth, and the ability to maintain market share against both established operators and new entrants.

Broader implications extend beyond the car wash sector to other fragmented industries targeted by private equity roll-up strategies. The Zips case illustrates how operational complexity, market saturation, and excessive leverage can overwhelm even businesses with strong unit economics and loyal customer bases. Future consolidators may adopt more conservative capital structures and focus on operational integration rather than rapid expansion through debt-financed acquisitions. For comprehensive analysis of restructuring trends and bankruptcy developments, visit ElevenFlo's bankruptcy blog.