By on September 21, 2020

U.S. auto-parts manufacturer Garrett Motion filed for Chapter 11 bankruptcy over the weekend. The announcement comes as ex-parent Honeywell International decided it could do without turbochargers and spun the company off in 2018. Garrett claims it lost a bunch of money during coronavirus lockdowns, like so many others, and was dumped by Honeywell only to be saddled with financial liabilities related to asbestos-exposure claims.

But Garrett has also said it’s entering into a purchase agreement with the private equity firm KPS Capital Partners LP for roughly $2.1 billion, providing more than a shred of hope things will turn out okay. While other firms can take a whack at buying the turbo supplier, they must be willing to cover its corporate debt by exceeding the existing bid and will likewise be subject to court approval. Garrett thinks it can still come out on top and wrap the sale by the start of 2021 without interrupting production any more than the pandemic already has.

According to Reuters, the forced-induction firm has been seeking court approval for a $250 million financing facility that should help see it through the restructuring process without inuring any downtime. Garrett has listed both assets and liabilities in the range of $1 billion and $10 billion, as per documents filed with the U.S Bankruptcy Court for the Southern District of New York.

From Reuters:

Automakers have been severely hit by the coronavirus outbreak, as they had to shutter factories, which 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.

While the coronavirus has made a convenient excuse for all manner of screw-ups and shenanigans, it’s frequently a valid one when it comes to losing money. But Honeywell claims Garrett is using the pandemic and its bankruptcy as a way to “to avoid the legitimate and reasonable financial commitments” the company assumed when they parted ways. “Garrett always has been capable of fulfilling those obligations with the assets it received in the spin-off,” Honeywell the former parent company said in a statement.

[Image: Garrett Motion]

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22 Comments on “Woosh, the Money’s Gone: Garrett Files for Bankruptcy...”


  • avatar
    ToolGuy

    Will we still see this?

    https://tinyurl.com/y2nnh2gl

  • avatar
    redapple

    Real shame. Real good company to supply.
    Not nut crushers.
    Good to work with.
    Pay their bills on time.
    They were 40 % of my sales 2000-2010.

    • 0 avatar
      R Henry

      @redapple

      “not nut crushers”

      –Sadly, nut crushing sometimes makes the differnce between life and death in biz.

      –As a manufacturer’s rep however, I know exactly what you mean. I have a few top shelf customers like that too…wish I had many more.

    • 0 avatar
      NormSV650

      Should have crushed the nuts of the none-turbochagered centric Japanese car companies.

  • avatar
    Mike Beranek

    Just clue me in here… why would a turbocharger manufacturer be involved in asbestos claims? Was it the factory?

    • 0 avatar
      volvo

      Read the clickable link. Interesting tale.

    • 0 avatar
      ToolGuy

      From Matt’s link in the first paragraph [@volvo, didn’t mean to step on your comment]:

      “In October 2018, Honeywell spun off what remained of its Transportation Systems business, primarily a turbocharger business, into what is now Garrett Motion. Garrett’s lawsuit arises from Honeywell’s unilateral imposition of a 30-year Indemnification Agreement as part of that spin. This agreement requires Garrett to compensate Honeywell for payments made to resolve Honeywell’s asbestos liabilities arising from Honeywell’s legacy Bendix automotive brake business. That brake business is completely unrelated to Garrett’s turbocharger business.”

      • 0 avatar
        Lou_BC

        Garrett must have thought it wouldn’t be much of an issue dealing with asbestos claims when they agreed to absorbing legacy costs or they had some sh!tty contract lawyers on the payroll at the time.

        I can’t recall when asbestos brakes were banned. Early 70’s?
        That would mean any potential class action claimants would be in the boomer demographic if still alive.

        • 0 avatar
          volvo

          Read the link. It isn’t that long. It explains how Garrett ended up with a significant liability during the spin-off process.

          • 0 avatar
            Lou_BC

            @volvo – I initially did not have time to read the entire article.
            It does look like Honeywell structured everything to offload responsibility to Garrett along with structuring Garrett so that they would not be aware of the extent of the liability.

          • 0 avatar
            dukeisduke

            I read it. It sounds like Honeywell really screwed Garrett, sticking Garrett with liabilities that should have stayed with Honeywell. I hope that Garrett-Motion, or its successors, prevail in court against Honeywell.

            According to the Wikipedia article on Bendix Corporation, Honeywell sold the Bendix Brakes trademark to MAT Holdings (owner of the part of DeVilbiss that makes air compressors and pneumatic tools) in 2014. My ’95 F-150 had a Bendix (then a part of AlliedSignal) vacuum booster. It’s been years since I saw any Bendix-branded aftermarket brake linings or hardware.

        • 0 avatar
          dukeisduke

          @Lou_BC

          According to the Wikipedia article on Bendix Corporation, Bendix was still making friction materials with asbestos as late as 1987. It doesn’t mention what market that involved, whether it was passenger cars, trucks, or commercial, like OTR trucks. From I what I remember, most manufacturers went away from asbestos in the late ’70s and early ’80s, as the **** was hitting the fan on asbestos. The brands I was buying at the time were Raybestos and Wagner.

          • 0 avatar
            Lou_BC

            @dukeisduke – I have a similar recollection. By the 80’s asbestos was on the way out.

            In Canada we still process asbestos and sell it to countries that don’t have a ban. Technically we don’t “mine” it since mining was banned in 2018 but “process” residues. That’s an obvious political loophole to keep Quebec politicians happy.

        • 0 avatar
          Ol Shel

          The article says that Honeywell installed their own shitty attorney to handle the contract on Garret’s side.

          Classy. and typical of business.

  • avatar
    Steve203

    I had stock in Honeywell for several years. When I received the information about the spinoff of Garrett, I started going through the prospectus, and saw how much debt Honeywell was unloading, as well as the asbestos liability. I sold the Garrett stock as soon as I could as it was obvious the spinoff was about relieving Honeywell of a lot of liability. So now GTX is BK, all the stakeholders take a haircut, and HON sails on it’s merry way.

    Right after GTX, Honeywell spun off it’s home security business too. Having seen how they set GTX up to fail, I dumped the REZI as soon as I could too.

  • avatar
    SCE to AUX

    Honeywell destroys every company it acquires, eventually outsourcing the manufacturing, engineering, and supply chain functions to squeeze every last penny from them.

    My former employer was acquired by Honeywell around 2014. 70% gross margins weren’t enough, so all mfg was sent to Mexico, and engineering was commoditized to third-world countries. Supply chain was forced to ask trustworthy vendors to re-bid their contracts to offer a decreasing price schedule which had to beat untested entries from China, using an e-bidding process. Past performance meant nothing.

    Despite promises of ‘investment’, after a year we were told that Honeywell was “going to exit manufacturing” at our plant – as casually as if you said you were going to exit the highway.

    Today that once-thriving business is in tatters, with plants in Iowa, Seattle, and Pittsburgh all- or nearly closed. Hundreds of skilled employees have gone elsewhere voluntarily (cheaper for Honeywell if you get fed up and quit), or involuntarily. I quit in 2016.

    I am fortunate to still be working with many of these people, as my current employer has picked up over 40 of them in the last few years.

    As for Garrett, I’m sorry to hear their tale. Maybe they can reorganize healthy if they survive the Honeywell poisoning.

  • avatar
    -Nate

    Sad news .

    -Nate

  • avatar

    American auto suppliers are following the US auto industry into the toilet. Does the US even have a valid auto parts business?

    The short term thinkers on wall street are putting US companies into a straight jacket.

  • avatar
    raph

    Private equity firm you say? Good luck with that as they saddle the company up with debt from “consultation fees” and “management fees” while they off load employees and any company healthcare and retirement obligations.

  • avatar
    namesakeone

    I wondered how a company that makes turbochargers goes bankrupt, in an automotive era where just about every car (and light truck) model offered has at least one turbocharged engine option. Then I remembered that F.A.O. Schwartz, a world-famous toy retailer, went bankrupt around Christmastime.

  • avatar
    schmitt trigger

    Raph;
    Spot on comment.
    I actually have been subjected to the excruciating experience of being acquired by private equity firms, twice, snd the scenario you mentioned is exactly what happens.

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