Garrett Motion equity committee says plan ‘patently unconfirmable’

By Sarah Lizee

Olympia, Wash., Feb. 10 – Garrett Motion Inc.’s official committee of equity securities holders objected the company’s disclosure statement for its Chapter 11 plan, as well as the related plan support agreement, according to Tuesday filings with the U.S. Bankruptcy Court for the Southern District of New York.

The committee claims that while the plan suffers from many defects that render it unconfirmable, two infirmities render it “patently unconfirmable.”

The group said the plan does not provide equal treatment to shareholders, as only a select group including Centerbridge, Oaktree and additional insider shareholders would receive the right to purchase $1.05 billion of convertible series A preferred stock, subject to a $200 million rights offering available to existing shareholders.

The remaining, non-insider shareholders may only elect between having their shares reinstated, and substantially diluted by the convertible series A preferred stock and the $6.25 cash-out option, the committee said.

“This unequal treatment of shareholders cannot be justified by any purported ‘new value’ provided by the [Centerbridge, Oaktree and Honeywell] group because, under Supreme Court precedent, new value must mean full value,” the committee said.

“Where, as here, a debtor offers an insider an exclusive investment opportunity without allowing other shareholders to participate ratably, there is no new value as a matter of law.”

The committee also claims the plan is patently unconfirmable because it violates Delaware law, which requires that a sale of the debtors to a group of shareholders holding more than 15% of the common stock be approved by both the board of directors and a 66.6% majority of the outstanding voting stock not owned by the interested stockholder. The debtors have not obtained that approval, the equity committee said.

A hearing on approval of the disclosure statement is scheduled for Feb. 16.

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, 2020 under case number 20-12212.

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