Zips Car Wash: $654M Debt and Chapter 11 Restructuring

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 more than 260 locations across 23 states was one of the biggest bankruptcies in the private credit space, despite generating $303 million in annual revenue and maintaining 625,000 subscription members through its Unlimited Wash Club program.

The filing followed Atlantic Street Capital's efforts to support its 2020 investment, including over $108 million in financing through 2024. The company faced rising interest rates, labor costs, and intense competition as approximately 900 new car wash sites opened annually nationwide. Hurricane Helene affected over 120 locations in September 2024. The company entered a pre-negotiated restructuring that transferred ownership from the private equity sponsor to its lender group.

Business Model and Market Position

Zips operated as one of the largest privately owned express car wash operators in the United States, serving 24 million cars annually with approximately 1,800 full and part-time employees. The company's express wash model processed up to 140 cars per hour through automated tunnels as the industry shifted from do-it-yourself washing to do-it-for-me service that characterized the express exterior segment's growth over the preceding decade.

Revenue derived from two primary sources: retail washes priced at $12-30 per visit and the Unlimited Wash Club subscription program launched in 2013. The subscription service charged $20-45 monthly depending on wash tier and generated over two-thirds of total revenue, providing recurring subscription revenue that supported the company's expansion strategy. Zips' subscription model reflected an industry-wide shift toward wash club programs, which according to the 2022 ICA Car Wash Consumer Study have become the fastest-growing service offering with reported membership increasing 43% since 2019. UWC subscribers increased from approximately 1,080 members per site in May 2020 to approximately 2,250 per site by June 2024—more than doubling penetration during Atlantic Street Capital's ownership period. Members received unlimited monthly washes for a fixed fee, with the ability to wash up to twice daily at any location within the network. The technology infrastructure supporting the subscription program, including license plate recognition systems and the new Zips mobile app launched in 2024, required capital investments during the company's financial distress.

The company operated three distinct brands targeting different market segments and geographic regions. ZIPS Car Wash represented the majority of sites concentrated in Southeast and Mid-Atlantic markets with standard express tunnel configurations. Rocket Express operated 5 mega-sites in Idaho and Utah featuring longer tunnels with higher throughput capacity. Jet Brite operated 12 locations in the Chicago metro area providing regional density in a competitive market.

Zips had scale advantages in supplier negotiations—particularly with primary vendor Sonny's Enterprises for chemicals, equipment, and maintenance services—and standardized operations across the portfolio, alongside a $654 million term loan balance. The express exterior tunnel format represented the fastest-growing segment of the car wash industry. According to Grand View Research, express exterior tunnels held 47.62% of the U.S. car wash market's share in 2024 and are forecast to grow at an 8.27% compound annual rate through 2030.

Path to Bankruptcy: Financial Distress and Sponsor Support

Atlantic Street Capital acquired majority control of Zips Car Wash in 2020 with plans to build a national car wash platform through strategic acquisitions. The private equity sponsor formed a $1.1 billion single-asset continuation fund to pursue the investment. By 2022, Atlantic Street had increased its stake by purchasing remaining equity from founding shareholders, taking full control of the platform. The sponsor subsequently injected over $108 million in rescue financing between July 2023 and 2024, including a $38 million initial liquidity infusion, an additional $70 million capital injection in June 2024, and a $30 million credit agreement guarantee. These investments coincided with external pressures in a rising rate environment.

Multiple factors affected Zips' financial position. The Federal Reserve's monetary tightening cycle beginning in 2022 increased debt service costs on the company's $654 million term loan facility, which carried floating rate exposure tied to SOFR benchmarks. Inflation, labor shortages, and softened discretionary spending eroded operating margins. Express car washes require labor despite automation, with attendants needed for pre-wash vehicle preparation, tunnel operations, and post-wash quality checks. Discretionary consumer spending on services like car washing declined as inflation reduced real household income, and subscription cancellations increased while retail wash frequency declined.

Market saturation increased competition. Approximately 900 new car wash sites opened annually nationwide over the past five years, with 936 openings in 2021 and 943 in 2022 at the peak of the express wash construction boom. This new supply increased price competition, particularly in Zips' core southeastern markets where multiple competitors built new facilities within trading areas of existing Zips locations. The car wash industry remains highly fragmented: no single company controls more than 5% of industry revenue, and the largest 50 companies combined hold less than 20% market share. Major private equity sponsors involved in the sector included Atlantic Street Capital (Zips), Oaktree Capital (Whistle Express), KKR (Quick Quack), and Warburg Pincus (El Car Wash).

Hurricane Helene impacted over 120 locations—approximately 46% of Zips' footprint—in September 2024. Sites in North Carolina, particularly the Asheville area, remained closed for months due to flood damage and infrastructure destruction. The natural disaster disrupted operations across Florida, Georgia, and the Carolinas, causing millions in lost revenue and property damage and membership cancellations in affected regions. Insurance recoveries lagged operational needs, adding to working capital pressure during the fourth quarter when weather typically supports car wash volumes.

Combined with an inflexible lease portfolio containing above-market rates and unfavorable renewal terms, the company's fixed cost structure tightened. Many leases originated during the 2020-2022 acquisition period when competition for prime locations drove rental rates higher. With term loans maturing on December 31, 2024, the company faced an immediate liquidity crisis. The company's operational initiatives—including the ZipsMe 2.0 Program (2023) standardizing service quality and national pricing, Project Refresh (2024) refurbishing existing sites, and the mobile app launch (2024) aimed at reducing subscription churn—required capital expenditures during a period of limited liquidity.

Pre-Petition Capital Structure

The company's pre-petition capital structure included:

The senior secured term loans matured on December 31, 2024, creating a refinancing deadline. Preferred equity holders were subordinated to the secured lenders under the capital structure.

Chapter 11 Restructuring

Zips filed with a pre-negotiated plan backed by 100% of lenders and shareholders, designed to reduce funded debt by approximately $279 million through a debt-for-equity swap. The restructuring support agreement executed before filing enabled an expedited court process. The company secured $82.5 million in DIP financing including $30 million in new money and a $52.5 million roll-up of prepetition debt, with Brightwood Loan Services LLC serving as DIP agent and lender. The DIP facility included milestones requiring plan confirmation by April 11, 2025.

The 84-day case duration from filing to successful emergence covered the period from February 5 to April 30, 2025. The reorganized capital structure comprised a $150 million New HoldCo Term Loan Facility, $225 million New OpCo Term Loan Facility, and $15 million New OpCo Revolver for total exit facilities of $390 million. The restructured capital structure reduced funded debt from $654 million to $390 million, a 40% reduction.

Professional Retentions and Fees

Kevin Nystrom of AlixPartners served as Chief Transformation Officer beginning in September 2024, leading pre-filing negotiations and operational restructuring efforts. The restructuring generated professional fees as the company coordinated a pre-negotiated plan with multiple stakeholder groups while maintaining ongoing operations:

Hilco Real Estate's fee covered site-level analysis across 260+ locations to identify rejection candidates and renegotiation opportunities. The real estate advisory engagement began in November 2024, prior to filing, reflecting the operational complexity of evaluating lease economics across 23 states.

Liquidation Analysis and First Day Relief

The Debtors' liquidation analysis demonstrated that all creditor classes would receive greater recovery under the plan than in a hypothetical Chapter 7 liquidation. DIP Facility claims would recover only 20.3% - 23.7% in liquidation, while Term Loan claims and General Unsecured claims would recover 0%. The analysis stated that car wash assets—express tunnel equipment, chemical inventory, and site-specific improvements—had limited liquidation value without ongoing operations. Above-market lease obligations further eroded potential liquidation proceeds. The analysis supported the plan's treatment of term lenders as the fulcrum security, with lenders receiving 100% equity in the reorganized company.

The Debtors obtained authority to maintain critical business operations through first day motions, including authority to maintain customer programs covering approximately 610,500 UWC subscribers and $5.2 million in gift card obligations, pay up to $7.1 million to critical vendors including chemical suppliers and equipment maintenance providers, pay approximately $2.1 million in prepetition wages and benefits for approximately 1,800 employees, remit $8.3 million in taxes including $7.6 million in property taxes, maintain insurance coverage with approximately $1.8 million in outstanding premiums, provide $1.1 million in utility deposits covering approximately $2.7 million in monthly expenditure, and continue cash management across 30 bank accounts with $1.5 million on hand at filing. The court authorized immediate lease rejections on 17 executory contracts and unexpired leases at the first day hearing, with additional rejections following Hilco Real Estate's site evaluations.

Stakeholder Treatment and Outcomes

Total General Unsecured Claims were estimated at $806-809 million, including lease rejection damages from the 41 rejected locations. Lenders took control through a debt-for-equity swap, converting their $654 million term loan claims into 100% of the reorganized company's common equity. Atlantic Street Capital's equity investment accumulated since 2020, including the $108+ million in rescue financing, was completely wiped out. The sponsor received releases for pre-bankruptcy actions under the confirmed plan.

Hilco Real Estate conducted site-level evaluations in November 2024, recommending rejection of 41 locations representing approximately 16% of the pre-petition footprint. These closures removed sites with above-market lease obligations. The 625,000 subscription members at rejected locations faced service disruption, requiring relocation to alternative sites within the network or cancellation of memberships, though the company implemented service credits and promotional offers to retain displaced members.

Trade creditors faced complete losses on pre-petition claims. General unsecured creditors received only GUC Trust interests with de minimis expected recovery. Chemical suppliers, equipment vendors, and utility providers absorbed write-offs while vendors deemed critical to ongoing operations received priority treatment through first day motions. Landlords at the 41 rejected locations became general unsecured creditors with lease rejection damage claims, receiving only GUC Trust interests. Car wash sites represent specialized single-purpose improvements, and landlords faced re-tenanting challenges. Landlords at continuing locations negotiated lease amendments, often accepting reduced rents in exchange for maintaining tenancy.

Pete Nani assumed the CEO role upon emergence, bringing more than three decades of car wash industry experience. Nani previously held leadership positions at Mister Car Wash, Wash Depot Holdings, and most recently served as CEO of Clean Freak and Rainstorm Car Wash under Circle K ownership, where he established and scaled their express car wash platform.

Industry Context and Market Dynamics

The Zips bankruptcy reflects broader industry challenges as private equity firms discovered operating car washes profitably proved harder than anticipated. The pandemic-era rush into the sector reflected optimism about consolidation opportunities in a fragmented market, subscription revenue models, and recession-resistant demand for vehicle maintenance services. According to industry analysis, the majority of the car wash industry became private equity-backed during the 2020-2022 consolidation wave. Transaction multiples reached high levels as sponsors competed for platforms, while the first half of 2024 brought a slowdown in car wash M&A with transaction count down approximately 46% and site count down nearly 40% compared to 2023.

The Zips filing highlighted valuation challenges in private credit markets. Zips reported 625,000 subscribers, $303 million revenue, and 260 locations alongside $654 million in acquisition debt as interest rates rose and competition intensified. Acquisitions made during the 2020-2022 expansion period left many PE-backed car wash platforms with higher cost bases as valuation multiples declined.

Industry experts suggest "the explosion of growth for growth's sake is over," and the U.S. car wash services market was estimated at $14.74 billion in 2024 with projected growth of 2.1% annually through 2030. Express exterior tunnels continue gaining market share, and the construction boom of 900+ annual new sites has created saturation in many markets. The 2025 industry outlook notes less overbuilding in crowded markets, though "the damage has been done in a lot of markets." Private equity was behind 70% of large U.S. bankruptcies in Q1 2025, with Zips cited as a significant example.

Frequently Asked Questions

What caused Zips Car Wash to file for bankruptcy?

Zips filed due to a combination of debt ($654 million), rising interest rates that increased debt service costs, competition from approximately 900 new car wash sites opening annually, macroeconomic factors including inflation and labor costs, and Hurricane Helene's impact on over 120 locations. The company's senior secured term loans matured on December 31, 2024, creating a refinancing deadline.

How long was Zips in bankruptcy?

Zips emerged from Chapter 11 in 84 days—filing on February 5, 2025 and emerging on April 30, 2025. The expedited timeline was possible because the company filed with a pre-negotiated plan backed by 100% of its lenders and shareholders.

Who owns Zips Car Wash now?

The company's lenders, a group of institutional investors in the private credit space, took 100% equity ownership through a debt-for-equity conversion. Former private equity sponsor Atlantic Street Capital had its equity completely wiped out despite injecting over $108 million in rescue financing between 2023 and 2024.

How many locations did Zips close?

Zips rejected leases on 41 locations, reducing its footprint from over 260 locations at filing to approximately 230 post-emergence. The closures covered sites with above-market lease obligations that Hilco Real Estate identified through site-level evaluations.

What happened to Unlimited Wash Club memberships?

The approximately 625,000 UWC subscribers at continuing locations maintained their memberships through the restructuring. Members at closed locations received communications about alternative sites within the network, and the company offered service credits to retain displaced members. The subscription program continues operating normally.

Did unsecured creditors receive any recovery?

General unsecured creditors, facing estimated claims of $806-809 million, received only GUC Trust interests with de minimis expected recovery. Trade creditors, landlords with rejection damage claims, and other unsecured claimants absorbed losses.

Who is running Zips after bankruptcy?

Pete Nani became CEO upon emergence, bringing over 30 years of car wash industry experience from leadership roles at Mister Car Wash, Wash Depot Holdings, and Circle K's car wash operations. The new ownership group of institutional lenders appointed Nani to lead the reorganized company.

How much debt did Zips eliminate?

The restructuring reduced funded debt by approximately $279 million, from $654 million pre-petition to $390 million in exit facilities. The new capital structure includes a $150 million HoldCo facility, $225 million OpCo facility, and $15 million revolver.

What were the professional fees in the Zips bankruptcy?

Total professional fees exceeded $15 million across all retained advisors. Kirkland & Ellis billed approximately $5.3 million as debtors' counsel, while Hilco Real Estate earned nearly $5 million for site-level evaluations across 260+ locations. Evercore received $1.2 million as investment banker, and the UCC's professionals (Pachulski Stang and FTI Consulting) billed approximately $2.2 million combined.

Is Zips Car Wash still operating after bankruptcy?

Yes, Zips continues operating approximately 230 locations across 22 states under its three brands: Zips Car Wash, Rocket Express, and Jet Brite. The company emerged from Chapter 11 on April 30, 2025, with new leadership under CEO Pete Nani and a deleveraged balance sheet. The Unlimited Wash Club subscription program continues serving members.

For analysis of restructuring trends and bankruptcy developments, visit ElevenFlo's bankruptcy blog.