COURT: Garrett Motion selects Centerbridge/Oaktree offer, resolving Honeywell claim and abandoning KPS bid - Update

[This is an update to Debtwire article bdq76g published earlier today, to include more detail on the case.]

 

Garrett Motion completed an auction of its assets on 5 January and initially announced on Friday (8 January) that KPS Capital Partners had submitted the “successful bid” for its assets with a USD 2.9bn offer.

 

The company added at the end of that report that it had also received a proposal from Centerbridge PartnersOaktree Capital Management, and Honeywell International (COH) and that it was reviewing the proposal. This morning Garrett subsequently announced that it has chosen the COH bid instead, which will pay all creditors other than Honeywell in full, allow equity holders to either retain their shares or receive cash, provide for a USD 1.05bn equity commitment, and include a USD 200m rights offering.

 

Honeywell, which had asserted a USD 1.8bn claim over an asbestos indemnification agreement from its 2018 spinoff of Garrett, has agreed to accept USD 375m in cash, Series B preferred stock payments of USD 35m in 2022 and USD 100m annually from 2023 to 2030, with Garrett having the option to prepay the Series B preferred stock at any time at a call price equivalent to USD 584m.

 

Garrett would also have the option to make a partial payment on the Series B preferred stock, reducing the present value to USD 400m, at any time within 18 months of its exit from bankruptcy. The duration of future Honeywell claims against the debtor would be reduced to nine years prior to the petition date, from 30 years.

 

The dispute over Honeywell’s claims was the central remaining dispute in the case, with Honeywell asserting that it was owed USD 1.8bn. The parties were scheduled to begin a 10-day trial on that matter in February before reaching this settlement.

 

 

The KPS bid

 

Before this morning’s settlement, today’s Garrett news would have been that the company had completed its auction and chosen a USD 2.9bn offer from KPS, its stalking horse, as the winning bid.

 

The company reported on Friday (8 January) that in second place was a USD 2.765bn bid from a consortium of Owl Creek Asset Management, Warlander Asset Management, Jefferies, Bardin Hill Opportunistic Credit Master Fund, Marathon Asset Management and Cetus Capital (OWJ). The company kicked off the auction on 21 December with a USD 2.6bn stalking horse bid from KPS. A second round went forward on 4 January before the company requested best and final bids by the end of the day on 5 January, with the increased KPS offer coming out on top.

 

After filing the notice of the successful bidder, Garrett filed a disclosure statement and plan of reorganization. This first version of the plan does not list the amount of each group of creditors’ estimated claims, but the plan states that all debt would be paid in full and equity holders would receive some recovery in the form of a mix of cash and stock along with the right to participate in the equity rights offering.

 

But all that became moot this morning, when Garrett announced that it had selected the COH bid.

 

Still pending is a request from the official committee of equity holders to allow the debtor to pay up to USD 2.5m fees and expenses incurred by potential investors with whom the equity committee is negotiating on a potential standalone plan of reorganization. A group of unaligned shareholders is backing the request, while the unsecured creditors committee is objecting.

 

by Pat Holohan