Garrett Motion shareholders seek approval to file competing plan

By Sarah Lizee

Olympia, Wash., Jan. 26 – Garrett Motion Inc.’s official committee of equity securities holders asked the U.S. Bankruptcy Court for the Southern District of New York to terminate the company’s exclusive periods to file and solicit votes on a Chapter 11 plan, according to a motion filed Tuesday.

The group said the plan needlessly transfers $1.1 billion of value away from thousands of shareholders owning 42% of the company to a handful of hedge funds – members of the Centerbridge, Oaktree and Honeywell group (the COH group) – that own a slim majority.

“The debtors’ purported justification for this value-destructive path is a settlement with Honeywell that the debtors vehemently opposed since the outset of the Chapter 11 cases,” the group said.

“The debtors do not have a coherent explanation for their abrupt abandonment of the Honeywell litigation, which was their primary rationale for filing Chapter 11 in the first instance.

“Now, with the debtors’ imprimatur, the COH plan exploits the COH group’s settlement with Honeywell by siphoning value away from the minority shareholders through a highly dilutive preferred stock offering and by blocking better plan alternatives in the process because the Honeywell settlement is purportedly exclusive to them.”

The committee is planning to file a stand-alone plan that is backstopped by $800 million of non-convertible redeemable preferred stock financing committed by Atlantic Park and up to $1.85 billion of senior secured financing offered by major financial institutions on a “highly confident” basis.

The group said the plan equals or exceeds the treatment afforded to all creditors in the COH plan, including the proposed settlement with Honeywell. However, the committee said the stand-alone plan substantially eliminates the massive dilution to existing shareholders proposed by the COH plan, which could transfer as much as $1.1 billion of value from existing shareholders to the sponsors of the COH plan.

“The COH plan offers GMI shareholders the right to participate in only a $200 million rights offering of the $1.25 billion in preferred stock – the remaining $1.05 billion is reserved solely for the COH group – which will in turn convert into 82.5% of the reorganized common stock,” the group said.

“In other words, the COH group members can buy up to 93.3% of this highly dilutive convertible preferred stock, but the 42% of shareholders outside the COH group can only buy 6.7%.”

By contrast, because the preferred stock backstopped by Atlantic Park is not convertible into common stock, the only potential dilution it would cause would be through at-the-money warrants offered to Atlantic Park and all qualified shareholders that participate in the preferred stock via a rights offering, the committee said.

“Other than a 25% minimum participation by Atlantic Park, the remaining amount of this preferred stock would be available to all GMI shareholders on a pro rata basis. Thus, it is significantly less dilutive than the COH preferred stock and far more democratic and fair,” the group added.

Rolle, Switzerland-based Garrett Motion is a provider of passenger vehicle, commercial vehicle, aftermarket replacement and performance enhancement solutions. The company filed for Chapter 11 bankruptcy on Sept. 20 under case number 20-12212.

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