Garrett Motion Rejects Rival Creditor Offers for Bankruptcy Loan

(Bloomberg) -- Auto-parts maker Garrett Motion Inc. rejected an alternative bankruptcy loan offered by Oaktree Capital Management and Centerbridge Partners, and a second one from a group of bondholders, instead selecting a revised deal from senior lenders.

The renegotiated debtor-in-possession loan from senior lenders is a “material improvement” from the original and is the best option available, Chief Restructuring Officer Bruce Mendelsohn said in court papers Monday. The revised terms remove certain milestones for the company in court, allow longer financing extensions and reduce certain fees.

Representatives for Garrett Motion and Oaktree declined to comment. A representative for Centerbridge didn’t immediately respond to a request for comment.

The debtor-in-possession financing must be approved in court and be supported by the majority of creditors. A hearing has been rescheduled to 10 a.m. Thursday in New York.

Financing Concerns

Garrett filed bankruptcy last week, struggling to deal with a pandemic-related slowdown in business on top of asbestos liability reimbursements it owes to its former parent Honeywell International Inc. The payments relate to asbestos claims stemming from Honeywell’s old Bendix brake business.

Garrett’s initial proposed $250 million financing package was attacked by shareholders and Honeywell, in part because it contained deadlines that could rush a potential $2.1 billion sale to KPS Capital Partners. The deal 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.

Honeywell objected to the KPS deal, saying it would relieve Garrett of its responsibility for the asbestos payments, and Garrett had agreed to consider a rival financing deal submitted by Oaktree and Centerbridge.

Revised Deals

The company had discussions with Oaktree and Centerbridge, but ultimately didn’t receive an improved offer, Mendelsohn said in court papers. Switzerland-based Garrett also received a DIP proposal from a group of secured bondholders, which it deemed “less favorable” than the revised financing from the lenders.

The group led by Oaktree and Centerbridge plans to revise the terms of their offer before Thursday’s court hearing, according to people familar with the matter who asked not to be named discussing private talks.

Oaktree and Centerbridge were seeking the support of Honeywell for their proposed bankruptcy loan as they considered making a bid for Garrett’s assets, Bloomberg previously reported. The investors aimed 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.

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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