Garrett Motion Inc. (Nasdaq: GTX, GTXAP), a
leading differentiated automotive technology provider, today
announced that it has entered into definitive agreements (the
“Agreements”) with Centerbridge Partners, L.P. (“Centerbridge”) and
funds managed by Oaktree Capital Management, L.P. (“Oaktree”) to
simplify the Company’s capital structure by converting all
outstanding Series A Preferred Stock into a single class of Common
Stock, on or about July 3, 2023, subject to certain conditions. The
agreements contemplate the repurchase of approximately $285 million
of Series A Preferred Stock from each of Centerbridge and Oaktree
at a market-based price, without premium, and provide for a
reduction in governance rights, as well as lock-up and other
agreements.
“I am pleased we have reached agreements with Centerbridge and
Oaktree to simplify our capital structure. Garrett is an extremely
successful and profitable company. However, the limited liquidity
in our preferred and common stock has made it difficult for large
investors to invest in Garrett. By converting to a single class of
common stock, with much greater market capitalization and
liquidity, we expect to broaden and diversify our shareholder base
and engage more effectively with the investment community. The
Board strongly believes that this will provide more financial
flexibility to Garrett in the future and benefit all shareholders.
Centerbridge and Oaktree have been great partners to Garrett and
its management team. I am grateful for their support and faith in
our company and look forward to their continued contributions as
large shareholders of Garrett,” said Daniel Ninivaggi, Chairman of
Garrett’s Board of Directors.
“The simplification of our capital structure at this time is
enabled by the great performance of Garrett and highlights its
ability to generate strong free cash flow while continuing to
invest for the future in both its core turbo business as well as in
new differentiated technologies for zero emission mobility. In
addition, the elimination of the Series A Preferred dividend adds
over $100 million of incremental annual net cash flow to support
these investments, delever the balance sheet and return capital to
shareholders. This transaction is clearly a testament to our
progress over the last few years and I am excited about the
long-term prospects of our business,” said Garrett President and
CEO, Olivier Rabiller.
“We continue to be impressed with Garrett Motion’s high quality
business model, growing end-market demand, and management team.
We’re excited to continue as significant investors and support the
culture of innovation. This transaction provides Garrett with
additional flexibility to pursue a broad range of capital
allocation options,” said Kevin Mahony, Managing Director at
Centerbridge.
Steven Tesoriere, Managing Director and Co-Portfolio Manager at
Oaktree said: “We continue to believe Garrett Motion remains well
positioned for long-term success, given its market leading
franchise, blue-chip customer base, and long history of R&D and
reliability. We remain committed to supporting the Company, and
firmly believe this transaction furthers Garrett’s position as a
differentiated technology leader.”
Transaction Overview
Pursuant to the Agreements and subject to the completion of the
debt financing described below, the Company’s Series A Cumulative
Convertible Preferred Stock (“Series A Preferred Stock”) will
convert into shares of the Company’s Common Stock on or about July
3, 2023, in a manner similar to the conversion procedures of an
Automatic Conversion Event set forth in the existing Certificate of
Designations for the Series A Preferred Stock. The conversion will
occur pursuant to an amendment and restatement of the Certificate
of Designations for the Series A Preferred Stock, which has been
approved by the Board of Directors and consented to by Centerbridge
and Oaktree as the holders of a majority of the Series A Preferred
Stock. Following the conversion, Garrett will have one class of
shares outstanding, the Common Stock, and an enhanced cash flow
profile from the elimination of the 11% Series A Preferred Stock
dividend, partially offset by the incremental interest expense.
The Company has agreed to repurchase approximately $280 million
of Series A Preferred Stock from Centerbridge and approximately
$290 million of Series A Preferred Stock from Oaktree for a total
of $570 million, reducing Centerbridge’s ownership from 22% to 15%
and Oaktree’s ownership from 23% to 15%, each on an as-converted
basis.1 Centerbridge and Oaktree will be paid a cash purchase price
of $8.10, plus the amounts below, per repurchased share. The $8.10
purchase price will be adjusted to equal the volume-weighted
average price of the Common Stock for the fifteen trading days
following the announcement of the transactions, subject to a
minimum price of $7.875 per share and a maximum price of $8.50 per
share.
As part of the transactions, all holders of Series A Preferred
Stock will receive an amount equal to:
- $0.17 per share, the preference dividends that will accrue on
the Series A preferred Stock through June 30, 2023;
- Approximately $0.6835 per share, the accrued and unpaid
preference dividends on the Series A Preferred Stock as of June 30,
2023; and
- $0.144375 per share, the preference dividends that would have
accrued through September 30, 2023.
Other than the preference dividend that would have accrued
through September 30, 2023, which will be paid in cash, these
amounts may be paid to all holders in cash, stock, or a combination
of cash and stock, at the election of the Company, and any stock
issued will be valued at the adjusted purchase price paid to
Centerbridge and Oaktree.
The repurchases are subject to obtaining funding of
approximately $700 million of new debt, which is expected to be in
the form of a new term loan B under the Company’s existing credit
agreement, subject to certain modifications related to the
transaction, which is expected to be consummated in Q2 2023.
Garrett has also announced an increase in the Company’s share
repurchase authorization to $250 million. Under the share
repurchase program, the Company may repurchase shares of Series A
Preferred Stock or Common Stock in open market transactions,
privately negotiated purchases and other transactions from time to
time.
Centerbridge and Oaktree have also agreed with the Company to
certain changes to their governance rights under the Company’s
governance documents, including a reduction of their existing board
nomination rights to no more than one (1) director each, down from
three (3) each at current ownership levels. The foregoing board
nomination rights will terminate for each of Centerbridge or
Oaktree if its ownership falls below 10% of the outstanding shares
of Common Stock (on an as-converted basis). Centerbridge and
Oaktree have also agreed to lock-up restrictions on their equity
securities of Garrett, including lock-up restrictions for 50% of
shares for six (6) months and remaining shares for twelve (12)
months, from the earlier of the closing of the repurchases from
Centerbridge and Oaktree and the 45th day after the execution of
the Agreements. Centerbridge and Oaktree have also agreed with the
Company to certain limits on their ability to purchase additional
equity securities, and voting limitations, for a period of up to
eighteen months.
The purchase of the shares Series A Preferred Stock from
Centerbridge and Oaktree pursuant to the Agreements is subject to
the completion of the debt financing, the effectiveness of the
amended and restated Certificate of Designations for the Series A
Preferred Stock, and certain other customary
conditions. The conversion of the Series A Preferred Stock
into shares of Common Stock pursuant to the amended and restated
Certificate of Designations for the Series A Preferred Stock is
subject to the completion of the repurchases from Centerbridge and
Oaktree.
Other Governance Highlights
Additionally, the Board announced the establishment of a Finance
Committee, consisting of five members, to assist the full Board in
reviewing and making recommendations on the Company’s capital
structure, material financing and offering transactions, material
business combinations and the Company’s investor relations
strategies.
The transactions were determined to be fair to and in the best
interests of the Company and the holders of Common Stock by an
independent and disinterested Board committee consisting of members
of the Board who are disinterested with respect to the Series A
Preferred Stock (the “Preferred Conversion Committee”), and by the
full Board. In connection with the transactions, the Preferred
Conversion Committee has been assisted with respect to corporate
finance matters by J.P. Morgan Securities LLC acting as advisor and
with respect to legal matters by Morris, Nichols, Arsht &
Tunnell LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP,
and the Company has been assisted with respect to corporate finance
matters by Morgan Stanley & Co. LLC acting as financial
advisor.
Conference Call Today
Garrett will host a conference call on Thursday, April 13, 2023
at 8:30 am Eastern Time / 2:30 pm Central European Time to
introduce the next chapter of Garrett Motion, both in terms of
capital structure and strategic agenda.
The conference call will be broadcast over the Internet and
include a slide presentation. To access the webcast and supporting
materials, please visit the investor relations section of Garrett’s
website at http://investors.garrettmotion.com/.
To participate, dial 1-877-883-0383 (US) or 1-412-902-6506
(international) and use the passcode 2505476.
A replay of the of the conference call will be available by
dialing 1-877-344-7529 (US) or 1-412-317-0088 (international) using
the access code 3087147. The webcast will be archived on Garrett’s
website for replay.
About Garrett Motion Inc.
Garrett Motion is a differentiated technology leader, serving
customers worldwide for more than 65 years with passenger vehicle,
commercial vehicle, aftermarket replacement and performance
enhancement solutions. Garrett’s cutting-edge technology enables
vehicles to become safer, more connected, efficient and
environmentally friendly. Our portfolio of turbocharging, electric
boosting and automotive software solutions empowers the
transportation industry to redefine and further advance motion. For
more information, please visit www.garrettmotion.com.
Forward Looking Statements
This release contains “forward-looking statements” within the
Private Securities Litigation Reform Act of 1995. All statements,
other than statements of fact, that address activities, events or
developments that we or our management intend, expect, project,
believe or anticipate will or may occur in the future are
forward-looking statements including without limitation our
statements regarding inflationary pressures on Garrett's business
and management's inflation mitigation strategies, financial results
and financial conditions, industry trends and anticipated demand
for our products, Garrett’s strategy, anticipated supply
constraints, including with respect to semiconductors, anticipated
developments in emissions standards, trends including with respect
to production volatility and volume, Garrett's capital structure,
anticipated new product development and capital deployment plans
for the future including expected R&D expenditures, anticipated
impacts of partnerships with third parties, Garrett's outlook for
2023, the capital structure transactions described herein,
potential repurchases of shares of Common Stock and Series A
Preferred Stock under Garrett’s share repurchase program, and the
planned debt financing in connection with the transactions
described herein. Although we believe the forward-looking
statements are based upon reasonable assumptions, such statements
involve known and unknown risks, uncertainties, and other factors,
which may cause the actual results or performance of Garrett to be
materially different from any future results or performance
expressed or implied by such forward-looking statements. Such risks
and uncertainties include but are not limited to the Company’s
ability to complete the transactions described herein, including on
the timelines the Company anticipates, the anticipated impacts to
the Company of the transactions, including on the Company’s stock
price, cash flows and anticipated future investments, the
availability of debt financing in amounts and on terms acceptable
to the Company, risks relating to potential purchases by the
Company of shares of common stock and Series A preferred stock
under the Company’s share repurchase program, and risk factors
described in our annual report on Form 10-K for the year ended
December 31, 2022, as well as our other filings with the Securities
and Exchange Commission, under the headings “Risk Factors” and
“Cautionary Note Regarding Forward-Looking Statements.” You are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this document.
Forward-looking statements are not guarantees of future
performance, and actual results, developments and business
decisions may differ from those envisaged by our forward-looking
statements.
Contacts: |
|
|
MEDIA |
|
INVESTOR RELATIONS |
Maria Santiago Enchandi |
|
Eric Birge |
1.734.386.6593 |
|
1.734.228.9529 |
Maria.SantiagoEnchandi@garrettmotion.com |
|
Eric.Birge@garrettmotion.com |
___________________________________________________________________________________________1
Excludes impact of dilutive securities and any payment of aggregate
accumulated dividend.
Garrett Motion (NASDAQ:GTXAP)
Historical Stock Chart
From Jul 2024 to Aug 2024
Garrett Motion (NASDAQ:GTXAP)
Historical Stock Chart
From Aug 2023 to Aug 2024