S&C Leads Garrett Motion Through Successful Chapter 11 Restructuring

May 12, 2021

In its third “mega case” as lead debtors counsel since the start of 2020, Sullivan & Cromwell helped Garrett Motion design and complete what is being regarded as one of the most innovative Chapter 11 cases of the year. The company and certain of its subsidiaries successfully emerged from bankruptcy on April 30.
 
Prior to filing, Garrett Motion had a great operating business hobbled by an impossible capital structure. The company, created by a spin-off in 2018, had inherited too much leverage and an unusual $5 billion, 30-year indemnification obligation to Honeywell International that Garrett Motion could neither repay nor terminate. This broken balance sheet prevented the company from raising new capital or participating in strategic transactions in its industry.
 
The Garrett Motion team designed a Chapter 11 case organized around the forced termination of the indemnity and the refinancing of the company as part of a competitive auction process. Hotly contested by bidders and creditors in the first months of the case, the competitive process in Chapter 11 ultimately unlocked very significant enterprise value. At the end of the case:

  • All creditors were paid in full, other than financial creditors who agreed to take negotiated haircuts. 
  • The problematic indemnity was completely eliminated and all litigation with Honeywell was settled. 
  • Public stockholders received the option of a $6.25 cash recovery or the right to retain their stock and invest in the new company at the same valuation as the plan sponsors. 
  • Every class of impaired creditors and holders of over 99 percent of the prepetition common stock approved the plan of reorganization. 
  • The company's new common stock commenced trading on Nasdaq on May 3.
The Garrett Motion case was noteworthy in that the company filed for Chapter 11 on a timetable that was not driven by a debt maturity or other specific event. Instead, the filing was timed so that the company was in the strongest possible operating and cash flow position, and therefore able to achieve the best negotiated result with stakeholders. The Chapter 11 case was also significant as a rare filing for Chapter 11 of an industrial company with its headquarters and bulk of operations outside of the United States, as well as the first Chapter 11 filing of a large Swiss operating subsidiary. 
 
In 2020, S&C also represented LSC Communications and California Resources Corporation in their successful Chapter 11 reorganizations. 
 
The S&C team advising Garrett before and during the Chapter 11 case was led by Scott Miller and Andy Dietderich. The U.S.-based team advising on corporate and bankruptcy matters included Andy Dietderich, Brian Glueckstein, Alexa Kranzley, Ben Beller and Noam Weiss. The London-based corporate team included Evan Simpson. Neal McKnight advised on financing matters. Nick Berkeley advised on non-U.S. collateral matters. Heather Coleman advised on executive compensation matters. Brian Glueckstein, Tom White and Akash Toprani advised on litigation matters. David Hariton, Davis Wang and Jameson Lloyd advised on tax matters. Nader Mousavi and Justin Orr advised on IP matters. Steve Holley and Eric Queen advised on U.S. antitrust matters. Foad Hoseinian advised on non-U.S. competition matters. Brad King advised on financing and corporate matters. Mark Rosenberg and Nick Menillo advised on D&O insurance matters.