Garrett Motion completes restructuring and emerges from bankruptcy

By Sarah Lizee

Olympia, Wash., April 30 – Garrett Motion Inc. has emerged from its pending Chapter 11 cases, completing the restructuring process and implementing the plan of reorganization that was confirmed by the U.S. Bankruptcy Court for the Southern District of New York on April 23, according to a Friday press release.

With the support of a significant majority of its stakeholders, led by funds managed by Centerbridge Partners, LP and funds managed by Oaktree Capital Management, LP, Garrett will remain a publicly traded company and expects to list its common stock on Nasdaq, effective May 3, under the ticker symbol “GTX.”

At emergence, Garrett will have about 65.04 million shares of new common stock issued and outstanding. In addition, Garrett will have roughly 247.77 million shares of new convertible series A preferred stock outstanding, which is convertible into common stock and votes on an as-converted basis with common stock.

The plan of reorganization also eliminates the previous asbestos indemnity and all related liabilities to Honeywell incurred by Garrett in its 2018 spin-off, and settles all litigation between Garrett and Honeywell.

The elimination of the 30-year indemnity substantially reduces Garrett’s effective leverage and increases its operational, financial and strategic flexibility, the company said.

Under the plan, all creditors of the company other than Honeywell are unimpaired and paid in full in cash.

Pre-petition funded debt was reduced to an estimated $1.1 billion at emergence.

Stockholders, other than the parties to the plan sponsor agreement, were 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.

Stockholders who did 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 of series A preferred stock on the same terms as the plan sponsors. The conversion price for the convertible series A preferred stock is $5.25.

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

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

The aggregate amount of rights available in the rights offering to equity holders who are not a party to the plan support agreement is $270 million.

In the case of an equity holder who elected 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.

Additional investors were to 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.

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 other secured claims will receive payment in full in cash, receive the collateral securing their claims, or have their claims reinstated.

Holders of other priority claims, secured tax claims, pre-petition credit agreement claims and senior subordinated noteholder claims will receive payment in full in cash.

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 is serving as restructuring adviser to Garrett Motion.

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

Garrett also 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.

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.

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 is serving 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 company filed for Chapter 11 bankruptcy on Sept. 20, 2020 under case number 20-12212.

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