Garrett Motion files for bankruptcy with $2.1 billion offer from KPS

By Sarah Lizee

Olympia, Wash., Sept. 21 – Garrett Motion Inc. and affiliated debtors filed Chapter 11 bankruptcy on Sunday in the U.S. Bankruptcy Court for the Southern District of New York.

The company entered into a definitive agreement with KPS Capital Partners, LP to act as stalking horse bidder to purchase the business for $2.1 billion, according to a press release.

If the stalking horse purchase agreement is terminated for an alternative transaction, Garrett will pay KPS a break-up fee of $63 million, according to court documents.

The company is seeking court approval for a $250 million debtor-in-possession senior secured super-priority term loan to bolster its liquidity position. A syndicate of banks arranged by Citigroup and including UBS Investment Bank, Credit Suisse and BNP Paribas have committed to provide exit financing to the KPS stalking horse acquisition vehicle to acquire Garrett.

The DIP facility is priced at Libor plus 350 basis points, subject to a 1% Libor floor, with an original issue discount of 99.5 bps.

The loan will mature in six months, with an option for a three-month extension. The extension is subject to a 50 bps fee.

The loan is being funded in two borrowings, with $100 million drawn at filing and an additional $150 million drawn 30 days later.

The proceeds of the new financing will supplement cash flow from ongoing operations and bolster the company’s liquidity position during the Chapter 11 cases.

Garrett has also entered into a restructuring support agreement with holders of roughly 61% of its outstanding senior secured debt.

“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 spinoff from Honeywell – all exacerbated by Covid-19 – have created a significant long-term burden on our business,” Olivier Rabiller, president and chief executive officer of Garrett, said in the release.

The company anticipates emerging from the Chapter 11 and completing the sale process in early 2021.

According to court documents, Garrett has $1 billion to $10 billion in both assets and debt.

The company’s largest unsecured creditors are Honeywell of Charlotte, N.C., with an undetermined litigation claim, Tennessee Department of Environment and Conservation of Nashville, with an undetermined environmental liability claim, Comune di Atessa of Chieti, Italy, with an undetermined environmental liability claim, Deutsche Bank Luxembourg SA of London, with a $422.1 million financial debt claim, Mei Ta Industrial of Taoyuan City, Taiwan, with a $24.43 million trade claim, Wuxi Yelong Precision Machinery Co. of Jiangsu, China, with a $17.78 million trade claim, Kehua of Jiangsu, China, with a $17.68 million trade claim, UniCredit of Luxembourg, with a $16.1 million supplu claim financing claim and WUXI LIHU of Jiangsu, China, with a $14.31 million trade claim.

Morgan Stanley & Co. LLC and Perella Weinberg Partners are acting as financial advisers, Sullivan & Cromwell LLP and Quinn Emanuel Urquhart & Sullivan LLP are acting as legal advisers, and AlixPartners is acting as restructuring adviser to Garrett Motion.

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

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