Garrett picks Centerbridge, Oaktree proposal following bidding war

By Sarah Lizee

Olympia, Wash., Jan. 11 – Garrett Motion Inc. announced it has selected an enhanced proposal from a consortium of stockholders led by plan sponsors Centerbridge Partners, LP and Oaktree Capital Management, LP as the best plan to reorganize the company, following a lengthy and active competitive process.

The company’s decision comes after considering proposals from several parties, including bidders at the court-approved auction and the plan sponsors, and involved multiple bids from the court-approved stalking horse, KPS Capital Partners, LP, as well as another consortium of stockholders, according to a press release.

Transaction details

Under the proposed transaction, all creditors of the company other than Honeywell International Inc. are unimpaired and paid in full in cash. Honeywell has agreed to the resolution of its claims.

Prepetition funded debt will be reduced from about $1.9 billion to an estimated $1.1 billion at emergence.

Stockholders, other than the parties to the plan sponsor agreement, will be offered the option of receiving cash for their shares at a price of $6.25 per share, representing a roughly 30% premium over the market price as of the close of trading Jan. 8.

The company will remain publicly listed. Stockholders who do not opt to receive cash will be entitled to retain their existing shares of common stock and receive the right to subscribe for a share of up to $200 million of series A preferred stock on the same terms as the plan sponsors.

The plan sponsors and stockholders participating in the rights offering will subscribe for $1.25 billion of series A preferred stock, the proceeds of which will be used to repay existing funded debt, make a $375 million payment to Honeywell, fund cash payments to stockholders opting to receive cash for their shares and to pay transaction expenses.

All asbestos and tax indemnification obligations to Honeywell incurred in connection with the 2018 spinoff will be resolved.

In addition to receiving the $375 million cash payment at emergence, Honeywell will receive series B preferred stock payable in installments of $35 million in 2022, and $100 million annually 2023 through 2030.

The company will have the option to prepay the series B preferred stock in full at any time at a call price equivalent to $584 million as of the emergence date, representing the present value of the installments at a 7.25% discount rate.

The company will also have the option to make a partial payment of the series B preferred stock, reducing the present value to $400 million, at any time within 18 months of emergence. In every case the duration of future liabilities to Honeywell will be reduced from 30 years prior to the Chapter 11 filing to a maximum of nine years.

The company expects to file a modified plan of reorganization reflecting the terms of the plan sponsor agreement by Jan. 22, and targets emergence from Chapter 11 by April 30, subject to receiving bankruptcy court approval and satisfaction of customary closing conditions.

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

Houlihan Lokey Inc. and Milbank LLP are serving as advisers to Centerbridge and Oaktree.

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 in the U.S. Bankruptcy Court for the Southern District of New York under case number 20-12212.

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