Garrett Motion Creditors Seek Honeywell Support for Rival Loan

(Bloomberg) -- Oaktree Capital Management and Centerbridge Partners are seeking the support of Honeywell International Inc. for their proposed Garrett Motion Inc. bankruptcy loan as they consider making a bid for the assets of the bankrupt auto supplier.

The two investment firms would aim to cut a deal with Honeywell to resolve Garrett’s $1.3 billion in disputed asbestos liabilities and win the conglomerate’s approval for their bid, according to people familiar with the plans.

Honeywell hasn’t yet indicated its position, and other creditors may pitch additional proposals, said the people, who asked not to be named discussing confidential plans. Garrett looks attractive to many potential buyers or investors, they said, as its finances are largely stable apart from the asbestos liability overhang.

Garrett filed bankruptcy this week, in part because of asbestos reimbursements owed to Honeywell, its former parent. Honeywell objected to a proposed bid from KPS Capital Partners at a court hearing Monday, saying the deal would relieve Garrett of its responsibility for the asbestos payments. Garrett said at that hearing it would consider Oaktree and Centerbridge’s competing loan proposal, which could put them in prime position to ultimately own Garrett.

Asbestos Overhang

Auto-parts maker Garrett was part of Honeywell until its 2018 spinoff, and blames the firm’s asbestos-related liabilities for helping put it into bankruptcy this week. Making a deal with Honeywell to resolve those claims would provide a potential bidder with an upper hand in the company’s bankruptcy auction process, the people said.

Garrett sought bankruptcy protection Sunday with a plan to sell itself to private equity firm KPS for $2.1 billion. The reimbursements Garrett owes to Honeywell relate to asbestos claims stemming from Honeywell’s old Bendix brake business. The proposal had the support from holders of 61% of its outstanding senior secured debt but didn’t include a plan to resolve the asbestos liabilities, which sit behind other forms of debt in line for repayment.

Representatives for Garrett Motion, Honeywell, Oaktree and Centerbridge declined or didn’t respond to requests for comment.

Expedited Sale

The plan was attacked in court by shareholders and Honeywell, in part because it contained deadlines they said would expedite the sale to New York-based KPS. Honeywell attorney Nicole L. Greenblatt of Kirkland & Ellis claimed the loan and the bankruptcy case were being rushed so Garrett could get out of the debt it owes its former parent.

Read More: Garrett Shareholders Force Firm to Look at New Bankruptcy Loan

Garrett’s plan to sell itself to KPS in bankruptcy may be “ambitious” given the objections from Honeywell and other parties, Negisa Balluku of Bloomberg Intelligence wrote in a report Tuesday.

Garrett, based in Switzerland, sued over the asbestos agreement in 2019, accusing Honeywell of “saddling Garrett with unconscionable and illegal covenants.” Honeywell has said the suit has no merit. Asbestos is a potent cause of malignancies, including a deadly form of lung cancer.

KPS specializes in manufacturing companies. Targets have included Briggs & Stratton Corp., the bankrupt maker of landscaping equipment, as well as the Baker Hughes Co.’s oil pump business and Humvee maker AM General.

The case is Garrett Motion Inc., 20-12212, U.S. Bankruptcy Court, Southern District of New York. To view the docket on Bloomberg Law, click here.

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