Garrett Motion amends facilities, gets covenant relief for two years

By Sarah Lizee

Olympia, Wash., June 12 – Garrett Motion Inc. reached an agreement with its senior lenders under its credit agreement providing for covenant relief for up to a two-year period through June 30, 2022, according to a press release.

Garrett’s credit agreement is comprised of a senior secured first-lien term B loan facility, which consists of a €375 million tranche and a $425 million tranche, a €330 million senior secured first-lien term A loan facility and a €430 million first-lien revolver.

The amendment puts certain financial ratios and tests in place during the relief period, according to an 8-K filing with the Securities and Exchange Commission.

As of the end of each fiscal month, starting with the fiscal month ending June 30, the restricted group under the credit agreement must have minimum liquidity of not less than $125 million through and including the fiscal month ending March 31, 2021, and $200 million as of the end of each fiscal month for the remainder of the relief period.

As of the end of each fiscal quarter, starting with the fiscal quarter ending June 30, the ratio of consolidated secured debt minus the lesser of available unrestricted cash on such day and $100 million to consolidated EBITDA over the last 12 months, must not exceed the following ratios: 5.75 to 1.00 for the fiscal quarter ending June 30, 9.25 to 1.00 for the fiscal quarter ending Sept. 30, 10.75 to 1.00 for the fiscal quarter ending Dec. 31, 11.75 to 1.00 for the fiscal quarter ending March 31, 2021, 6.50 to 1.00 for the fiscal quarter ending June 30, 2021, 4.50 to 1.00 for the fiscal quarter ending Sept. 30, 2021, 4.25 to 1.00 for the fiscal quarter ending Dec. 31, 2021, 3.75 to 1.00 for the fiscal quarter ending March 31, 2022 and 3.50 to 1.00 for the fiscal quarter ending June 30, 2022.

Starting with the fiscal month ending June 30, the company must not permit the average amount of available unrestricted cash of the restricted group under the credit agreement based on the balance for each of the last five business days of the fiscal month to exceed $165 million.

Upon the occurrence of a covenant relief termination event or the conclusion of the relief period, the total leverage ratio and interest coverage ratio covenants included in the credit agreement will again apply. The minimum liquidity, net secured leverage ratio and maximum cash covenants will no longer apply following the conclusion of the relief period.

Each of the revolving facility and term A facility continues to mature on Sept. 27, 2023, and the term B facility continues to mature on Sept. 27, 2025. Under the amendment, the margin applicable to loans under the term B facility will increase by 75 basis points through the maturity date and the margin applicable to loans under the revolver and term A facility will increase by 25 bps until the company delivers consolidated financial statements as of and for its first fiscal quarter ending on or after the last day of the relief period.

In addition, if the company’s corporate family rating by Moody’s is B2 or lower or there is no corporate family rating of the company by Moody’s and, at the same time, the corporate rating from S&P is B+ or lower or there is no corporate rating of the company by S&P, then upon the first occurrence of this ratings event the margin applicable to loans under our senior credit facilities will increase by 25 bps through the maturity date.

The amendment also tightened some of the baskets applicable to the company’s ability to incur additional debt, create liens, and make investments and restricted payments. These increased restrictions will no longer apply following the conclusion of the relief period.

The amendment also modifies the conditions to draw down under the revolver.

“The modifications to our credit agreement significantly enhance Garrett’s financial flexibility to weather the current pandemic-induced economic slowdown,” Olivier Rabiller, Garrett president and chief executive officer, said in the release.

In connection with Garrett accomplishing the agreement with its lenders, Honeywell withdrew its previously issued notice of default. Garrett said it believes that Honeywell’s action “had no merit and was an improper attempt to interfere” with the company’s contractual arrangements with its lenders and to delay its ongoing litigation against Honeywell concerning a subordinated asbestos indemnity imposed on Garrett in connection with the 2018 spinoff.

Garrett said it “has and will continue to take appropriate actions to defend itself against any of Honeywell’s attempts to interfere” with its operations as an independent company.

Garrett is a Rolle, Switzerland-based manufacturer of turbocharger and electric-boosting technologies for light and commercial vehicle original equipment manufacturers and the aftermarket.

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