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Garrett Motion Inc. – Global Auto Parts Leader Files Chapter 11 with $4.2bn of Liabilities Citing COVID-19, Unsustainable, Post-Honeywell Capital Structure & Asbestos Liability; Announces $2.1bn Stalking Horse Bid of KPS Capital & $250mn of DIP Financing


September 20, 2020 – Garrett Motion Inc. and 36 affiliated Debtors (NYSE: GTX; “Garrett” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 20-12212. The Debtors, a manufacturer of turbocharger, electric-boosting and connected vehicle technologies for original equipment manufacturers and the automotive aftermarket, are represented by Andrew G. Dietderich of Sullivan & Cromwell LLP. Further board-authorized engagements include (i) AlixPartners  LLP as restructuring advisors, (ii) Perella Weinberg Partners as investment banker, (iii) Morgan Stanley & Co. LLC as investment banker and (iv) Kurtzman Carson Consultants LLC as claims agent. 

The Debtors’ lead petition notes between 5,000 and 10,000 creditors, estimated assets of $2.066bn and estimated liabilities of $4.169bn ($1.86bn of funded debt). Documents filed with the Court list the Debtors’ five largest unsecured creditors as (i) Honeywell ($undetermined litigation claim), (ii) Tennessee Department of Environment and Conservation ($undetermined litigation claim), (iii) Comune di Atessa (Chieti) ($undetermined litigation claim), (iv) Deutsche Bank Luxembourg S.A ($422.1mn senior notes claim) and (v) Mei Ta Industrial ($24.4mn trade debt claim).

In a press release announcing the filing, Garrett advised that “it has entered into an agreement with KPS Capital Partners, LP ('KPS') with respect to a potential purchase of its business and commenced voluntary Chapter 11 cases with the United States Bankruptcy Court for the Southern District of New York in order to implement the purchase.

In connection with its reorganization, the Company has entered into a Restructuring Support Agreement with holders of approximately 61% of the Company’s outstanding senior secured debt as of the date of the chapter 11 filing and is seeking Court approval of $250 million of debtor-in-possession financing, arranged by Citigroup. The proceeds of the new financing, which is subject to Court approval and the satisfaction of other conditions precedent, will supplement cash flow from ongoing operations and bolster the Company’s liquidity position during the Chapter 11 cases.”

Olivier Rabiller, President and Chief Executive Officer of Garrett, commented: “Although the fundamentals of our business are strong and we have continued to try to develop our business strategy, the financial strains of the heavy debt load and liabilities we inherited in the spin-off from Honeywell – all exacerbated by COVID-19 – have created a significant long-term burden on our business.”

Proposed Sale to KPS

The Debtors entered into a Stock and Asset Purchase Agreement (the “Stalking Horse APA,” a draft of which is attached to the lead Petition) with private equity house KPS Capital Partners, LP ("KPS") on September 20th; with KPS agreeing to pace a section 363 sale process with a $2.1bn (cash) bid. Last week, KPS was designated the successful bidder ($550.0mn) for the bankruptcy assets of Brigg & Stratton.

The Deason Declaration (defined below) provides: "After a robust bidding process, the Company selected a winning bid of $2.1 billion from a new company formed by KPS Capital Partners, LP (together with its affiliates, ‘KPS’ or the ‘Stalking Horse Purchaser’). KPS is a family of investment funds with approximately $11.5 billion of assets under management (as of June 30, 2020). KPS makes controlling equity investments in manufacturing and industrial companies across a diverse array of industries and has a deep understanding of the manufacturing process, including the commitment, resources, and focus required to create and maintain world-class manufacturing operations in all regions of the world. KPS has a strong track record of successfully investing in automotive parts, transportation, and specialty vehicle industries. KPS has also successfully completed a number of acquisitions through bankruptcy sale processes, and was recently designated the successful bidder to acquire substantially all of the assets of the Briggs & Stratton Corporation for approximately $550 million in that company’s bankruptcy sale."

The Stalking Horse APA provides the following on purchase price: “Purchase Price” means an amount in Dollars equal to: (i) two billion one hundred million Dollars ($2,100,000,000); plus (ii) the amount, if any, by which Net Working Capital exceeds Target Net Working Capital; minus (iii) the amount, if any, by which Net Working Capital is less than Target Net Working Capital; plus (iv) Net Cash; minus (v) Transaction Expenses. 

The Deason Declaration continues: "The Stalking Horse Purchase will substantially reduce the funded debt of the Company, as well as eliminate legacy [asbestos] liabilities.  The following chart shows the funded debt of the Company today versus the funded debt currently contemplated by the Stalking Horse Purchaser after consummation of the Stalking Horse Purchase:

 The Deason Declaration does not provide further detail as to the $1.1bn exit financing (the referenced footnotes not actually appearing in the Declaration) or specifically reference the treatment of holders of senior notes; the latter ostensibly getting a zero (or near zero) recovery based on the $413.0mn "adjustment" noted above.

Restructuring Support Agreement

On September 20, 2020, the Debtors entered into a Restructuring Support Agreement (the “RSA”) with lenders holding approximately 61% of the aggregate principal amount of loans outstanding under the Senior Creditor Facilities (“Supporting Lenders”). Pursuant to the plan described in the RSA, if the Stalking Horse Purchase is successfully consummated, holders of claims under the Senior Credit Facilities will receive payment in full in cash on the effective date of the chapter 11 plan, other than default interest in an amount expected to equal approximately $15 million (assuming a 210 day case). 

The RSA also includes an obligation of the Supporting Lenders to execute and deliver to the agent for the Senior Credit Facilities a separate consent (the 'Priming Consent') to the incurrence of the Debtors’ $250.0mn million debtor-in-possession credit facility (the “DIP Credit Facility,” see "Prepetition Indebtedness" below).

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Deason Declaration”), Sean Deason, the Debtors’ Chief Financial Officer, detailed the events leading to Garrett’s Chapter 11 filing. The Deason Declaration provides: “The Company was spun-off by its prior owner, Honeywell International Inc. (‘Honeywell’), less than two years ago, in October of 2018. The spin-off created a highly leveraged capital structure. Honeywell caused the Company, prior to the spin-off, to issue approximately $1.6 billion of new third-party indebtedness under the Senior Credit Facilities (defined below) and Senior Notes (defined below) to fund an approximately $1.6 billion cash distribution to Honeywell. Honeywell also caused an important subsidiary of the Company (Garrett ASASCO Inc., or 'ASASCO') to enter into a financially extraordinary indemnity contract, with a term of 30 years and maximum payments up to $5.25 billion, to reimburse Honeywell for legacy asbestos exposure of Honeywell arising out of an unrelated Honeywell business. The inherited capital structure is not sustainable. It puts the Company at a substantial disadvantage to its competitors when dealing with OEMs and other business partners, reduces the Company’s ability to invest in new technologies, eliminates access to new debt and equity capital, and limits the Company’s ability to absorb adverse market conditions. 

The outbreak of the COVID-19 pandemic underscored the problem with the Company’s highly leveraged capital structure.  The Company’s production, which includes a major manufacturing plant in Wuhan, China, was halted for nearly two months.  As the pandemic continued, the resulting global shutdown also shrank demand for the Company’s products.  With rising unemployment, uncertainty about the future, and limited need for travel, the production of global light vehicles dropped by 43.2% percent in the second quarter of 2020 as compared to the second quarter of 2019 and has not fully recovered.  However, the Company’s capital structure prevented many of the capital raising or other liquidity alternatives available to, and utilized by, the Company’s competitors.”

DIP Financing

The Debtors have commitments for $250.0mn of new money, debtor-in-possession (“DIP”) financing to be provided by a syndicate of lenders (Citibank as administrative agent) that are parties to the Debtors’ RSA. $100.0mn of the DIP financing will be made available upon the issuance of an interim DIP financing order.

Prepetition Indebtedness

As of the Petition date, the Debtors have approximately $1.86bn in aggregate outstanding funded indebtedness, comprised of:

  • Term Loan Facilities: The Debtors are parties to a September 2018 credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent. The Credit Agreement provides for senior secured financing of approximately the Euro equivalent of $1.45bn, consisting of (i) a seven-year senior secured first-lien term loan B loan facility, which consists of a tranche denominated in Euro of approximately €307.0mn and a tranche denominated in U.S. Dollars of approximately $417.5mn (the “Term B Facility”), (ii) a five-year senior secured first-lien term loan A facility in an aggregate principal amount of approximately €251.6mn (the “Term A Facility” and, together with the Term B Facility, the “Term Loan Facilities”) and (iii) a five-year senior secured first-lien revolving credit facility in an aggregate commitment amount of €430.0mn, with revolving loans to the Swiss Borrower to be made available in a number of currencies including Australian Dollars, Euros, Pounds Sterling, Swiss Francs, U.S. Dollars and Yen (the “Revolving Facility” and, together with the Term Loan Facilities, the “Senior Credit Facilities”). The Revolving Facility and the Term A Facility each mature on September 27, 2023. The Term B Facility matures on September 27, 2025. 

As of the Petition Date, the outstanding principal amount under the Revolving Credit Facility was $370.0mn and the outstanding principal amount under the Term Loan Facilities was approximately $1,077.0mn.

  • Senior Notes: In September 2018, Debtor LuxCo 1 and Debtor Garrett Borrowing LLC (the “Issuers”) issued €350.0mn in principal amount of senior notes (the “Senior Notes”) with Deutsche Trustee Company Limited serving as trustee (the “Indenture Trustee”), Deutsche Bank AG, as security agent and paying agent, and Deutsche Bank Luxembourg S.A., as registrar and transfer agent. Each of the Debtors guarantees the obligations under the Senior Notes. The Senior Notes bear interest at 5.125% annually and mature on October 15, 2026. 



Approximate Principal Amount Outstanding (USD equivalent)2

Revolving Facility

September 27, 2023


Term A Facility

September 27, 2023


Term B Facility – euro tranche

September 27, 2025


Term B Facility – dollar


September 27, 2025


Senior Notes

October 15, 2026




2 Assumes a conversion rate of 1.18 USD/EUR.

About the Debtors

According to the Debtors: "Garrett Motion is a differentiated technology leader, serving customers worldwide for more than 65 years with passenger vehicle, commercial vehicle, aftermarket replacement and performance enhancement solutions. Garrett’s cutting-edge technology enables vehicles to become safer, and more connected, efficient and environmentally friendly. Our portfolio of turbocharging, electric boosting and automotive software solutions empowers the transportation industry to redefine and further advance motion."

About KPS Capital Partners, LP

According to KPS: "KPS, through its affiliated management entities, is the manager of the KPS Special Situations Funds, a family of investment funds with over $11.5 billion of assets under management (as of June 30, 2020). For over two decades, the Partners of KPS have worked exclusively to realize significant capital appreciation by making controlling equity investments in manufacturing and industrial companies across a diverse array of industries, including basic materials, branded consumer, healthcare and luxury products, automotive parts, capital equipment and general manufacturing. KPS creates value for its investors by working constructively with talented management teams to make businesses better, and generates investment returns by structurally improving the strategic position, competitiveness and profitability of its portfolio companies, rather than primarily relying on financial leverage. The KPS Funds’ portfolio companies have aggregate annual revenues of approximately $7.7 billion, operate 146 manufacturing facilities in 26 countries, and have approximately 26,000 employees, directly and through joint ventures worldwide."

Corporate Structure Chart (please see also Exhibit B to Deason Declaration)


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The post Garrett Motion Inc. – Global Auto Parts Leader Files Chapter 11 with $4.2bn of Liabilities Citing COVID-19, Unsustainable, Post-Honeywell Capital Structure & Asbestos Liability; Announces $2.1bn Stalking Horse Bid of KPS Capital & $250mn of DIP Financing appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.

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