KPS Capital Partners, through a newly formed affiliate, entered into a stock and asset purchase agreement with Garrett Motion under which KPS will acquire substantially all of the assets of Garrett for approximately $2.1 billion.

Garrett will file a motion with the United States Bankruptcy Court for the Southern District of New York  seeking the designation of KPS as the “stalking horse bidder” in a bidding procedures motion in connection with the company’s filing of voluntary petitions under Chapter 11 of the Bankruptcy Code.  KPS was selected by Garrett after a comprehensive review of strategic alternatives by the company’s Board of Directors.  To facilitate the sale process, Garrett has begun a process in the United States to financially restructure through a voluntary Chapter 11 proceeding.  The completion of the sale is subject to court approval, among other customary conditions.  KPS currently expects the sale process to be completed in early 2021.

The KPS stalking horse transaction agreement is subject to higher or better offers in the bankruptcy case. Closing of the transaction is subject to customary regulatory approvals, as well as court approval and other customary conditions.

In connection with its reorganization, the company has entered into a restructuring support agreement with holders of approximately 61% of the company’s outstanding senior secured debt as of the date of the chapter 11 filing and is seeking court approval of $250 million of debtor-in-possession financing, arranged by Citigroup. The proceeds of the new financing, which is subject to Court approval and the satisfaction of other conditions precedent, will supplement cash flow from ongoing operations and bolster the company’s liquidity position during the Chapter 11 cases.

KPS, through an affiliate, has also agreed to participate in Garrett’s debtor in possession financing to support the company’s operations.  Following court approval, the DIP facility will ensure that Garrett has sufficient liquidity to continue normal operations and continue to meet its financial obligations during the Chapter 11 process, including the timely payment of employee wages and benefits, continued servicing of customer orders and shipments, and other obligations.

A syndicate of banks including Citi, UBS Investment Bank, Credit Suisse and BNP PARIBAS, have committed to provide exit financing to the KPS stalking horse acquisition vehicle to acquire Garrett.  The exit financing is subject to completion of the acquisition and customary closing conditions.

Raquel Vargas Palmer, managing partner of KPS, said, “We proceed with great conviction and enthusiasm to acquire Garrett, a global leader in turbocharger and electrification technologies, serving nearly every major automotive and commercial vehicle OEM in the world.  Garrett enjoys a leading market position, scale, world class research and development sites, and state-of-the-art manufacturing and engineering facilities strategically located around the globe.  We look forward to working with the Company’s leadership team and employees to accelerate its many attractive growth opportunities as well as increase its already substantial investment in research and development, technology and new product development.

“KPS has invested an enormous amount of effort, resources and capital to acquire Garrett. We are committed to the expeditious acquisition of Garrett to provide certainty of outcome and confidence in the new Company’s future for all of its stakeholders, including customers, employees and suppliers.  The Company and its stakeholders will benefit from KPS’ demonstrated track record and decades long history of successfully investing in the automotive and transportation industries globally, commitment to manufacturing excellence, continuous improvement and access to our significant financial resources.  The new Garrett will be conservatively capitalized and not encumbered by its predecessor’s significant liabilities.” 

UBS Investment Bank and Credit Suisse are acting as financial advisors, and Davis Polk & Wardwell LLP is acting as legal counsel to KPS with respect to the transaction.