(Reuters) – U.S. auto-parts maker Garrett Motion Inc said on Sunday it filed for Chapter 11 bankruptcy protection, as it struggled with heavy debt due to a payment settlement dispute with former parent Honeywell International Inc HON.N and the COVID-19 pandemic.
Garrett said it entered into a “stalking horse” purchase agreement with private equity firm KPS Capital Partners LP for $2.1 billion.
The “stalking horse” agreement would imply that any other bids that come in must be higher than the offer made by KPS. The agreement is subject to court approval.
Garrett said it was also seeking court’s approval for a $250 million debtor-in-possession financing facility. Throughout the reorganization process, Garrett expects to operate without interruption.
The company listed both assets and liabilities in the range of $1 billion and $10 billion, according to a filing with the U.S Bankruptcy Court for the Southern District of New York.
Automakers have been severely hit by the coronavirus outbreak, as it shuttered vehicle factories and led to a slump in production and disrupted supply chains.
“…the financial strains of the heavy debt load and liabilities we inherited in the spin-off from Honeywell – all exacerbated by COVID-19 – have created a significant long-term burden on our business,” Chief Executive Officer Olivier Rabiller said in a statement.
In January, the company accused Honeywell of devising the spinoff of Garett, its transportation systems business, in late 2018 to offload Honeywell’s liabilities related to asbestos-exposure claims.
Garrett expects to emerge from the Chapter 11 and complete the sale process in early 2021.Morgan Stanley & Co Llc and Perella Weinberg Partners served as financial advisers to Garrett.
Sullivan & Cromwell LLP and Quinn Emanuel Urquhart & Sullivan LLP were legal advisers. AlixPartners served as Garrett’s restructuring adviser.
