Garrett Motion wins court approval of amended disclosure statement

By Sarah Lizee

Olympia, Wash., March 10 – Garrett Motion Inc. received court approval of the amended disclosure statement for its Chapter 11 plan, according to a press release issued late Wednesday.

The day before, the company filed an amended and restated its plan support agreement with Centerbridge Partners, LP, Oaktree Capital Management, LP, Honeywell International Inc. and other investors, according to an 8-K filing with the Securities and Exchange Commission.

The company simultaneously filed the amended Chapter 11 plan and related disclosure statement. The company is seeking a confirmation hearing on April 21.

The amended agreement now provides for an increase in the conversion price for the convertible series A preferred stock to $5.25 from $3.50.

It also provides for an increase in the aggregate amount of the rights offering to $632 million from $200 million.

In addition, it provides for retention of the option for existing shareholders to receive $6.25 in cash in exchange for cancelation of their existing Garrett common stock.

Further, those equity holders who elect to retain their common stock will be subject to less dilution and have a greater opportunity to participate in the rights offering.

Originally, existing equity holders would have been left with 18% of reorganized Garrett’s common equity on an as-converted basis following emergence.

Now, the current GMI equity holders who do not elect the cash-out option will hold 23% of reorganized Garrett’s common equity on an as-converted basis following emergence.

Further, the aggregate amount of rights available in the rights offering to equity holders who are not a party to the plan support agreement have increased materially to $270 million from $93 million.

In the case of an equity holder who elects under the plan both to exchange old common stock for new common stock and to fully exercise its rights in the rights offering, the value of the old common stock exchanged by such equity holder under the plan will exceed the amount of cash paid by that equity holder in connection with the rights offering.

Also, additional investors will now fully backstop the rights offering in exchange for an approximate 8.4% direct allocation of the subscription rights.

The backstop allocation is on the same terms and conditions as the rights offering and there is no other backstop fee nor discounted purchase price, or compensation for the backstop commitment, other than customary expense reimbursement and indemnities.

“The agreements are the product of extensive arms’ length and good faith negotiations between the debtors and the parties thereto, the terms of which are now supported by all significant stakeholders including the official committee of equity securities holders,” said Bruce Mendelsohn, head of global restructuring at Perella Weinberg Partners LP, which is the company’s investment banker.

“Additionally, the amended and restated the plan support agreement and the equity backstop commitment agreement preserve the significant benefits of the original plan support agreement and equity backstop commitment agreement while further improving the terms for the debtors’ estates and, importantly, increasing the value of the options available to current GMI equity holders who do not want to elect the cash-out option.

“These agreements provide the debtors critical commitments and bind the parties thereto, permitting the debtors to seek confirmation of the debtors’ proposed plan of reorganization knowing that the debtors have the capital and support necessary to emerge from Chapter 11.”

Transaction details

As previously reported, under the proposed reorganization transaction, all creditors of the company other than Honeywell are unimpaired and paid in full in cash. Honeywell has agreed to the resolution of its claims.

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

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 $632 million, up from $200 million previously, 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.

Holders of general unsecured claims will have their claims reinstated, receive payment in full in cash, or receive other treatment rendering their claims unimpaired.

Intercompany claims and interests will be reinstated or canceled without any distribution.

Holders of section 510(b) claims will receive their pro rata share of the aggregate cash payments received or recoverable from any insurance policies on account of their claims.

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.

Exit financing

Earlier this month, Garrett also successfully allocated to lenders a $1.25 billion-equivalent term loan, which, alongside a new $300 million five-year revolving credit facility, will provide financing to fund Garrett’s emergence from bankruptcy and refinance pre-petition and debtor-in-possession facilities. Closing of the exit financing remains subject to satisfaction of customary closing conditions.

As previously reported, the company set the U.S. seven-year term loan B size at $715 million and the euro seven-year term loan B size at €450 million, according to a market source.

Pricing on the U.S. term loan is Libor plus 325 basis points with a 0.5% Libor floor and an original issue discount of 99.5, and pricing on the euro term loan is Euribor plus 350 bps with a 0% floor and a discount of 99.5.

Previously in syndication, pricing on the U.S. term loan firmed at the high end of the Libor plus 300 bps to 325 bps talk, and pricing on the euro term loan was set at the high end of the Euribor plus 325 bps to 350 bps talk.

JPMorgan Chase Bank is the lead bank on the deal.

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

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