Japan’s Marelli, one of the world’s largest auto parts suppliers, has filed for bankruptcy protection in the US as it seeks breathing space from a future battle involving banks, private equity giant KKR and major tormented debt groups.
Marelli, headquartered in the outskirts of Tokyo, has filed for Chapter 11 bankruptcy protection for Delaware, USA. The move will give time to restructure and involve bridging funding from foreign creditors led by the hedge fund’s strategic value partners. According to those familiar with the issue, the SVP will be in pole position to take over the pole position.
“We are pleased with recent advances and profitability, but market pressure across the industry has created a working capital gap that needs to be addressed,” Marelli CEO David Slump said in a statement.
“After careful consideration of the company’s strategic alternatives, we decided that entering the Chapter 11 process was the best path to strengthening Marelli’s balance sheet by converting debt into equities.
The company said it has received a huge $1.1 billion commitment from lenders to debtor funding, and will emerge from Chapter 11 to acquire ownership of the business, subject to a 45-day over-process.
That window will allow Indian automotive supplier Sambard Hana Motherson Group (the only other bidder alongside SVP) to make a new push. Those familiar with the idea suggest that it is considering such a move.
The decision to protect the court concludes the latest chapter of one of the most controversial, costly and publicly sensitive private equity transactions in Japanese corporate history. It cast a shadow on Marelli’s owner KKR. This is looking for buyers from troubled groups and other industries.
According to Tokyo lawyers and bankers, the existence of tormented debt funds, including the fortress and South Korean MBK, and the fact that this spread to US courts, made it a “unprecedented” showdown.
Marelli was founded in 2019 after KKR’s Japanese auto parts manufacturer Calsonic Kansei acquired Italian business Magneti Marelli. Calsonic Kansei is loaded with 110 million yen ($7.6 billion) of debt, of which approximately 700 million yen was used to fund the purchase.
The company was undergoing a massive debt restructuring in Japan in 2022 after revenues plummeted during the coronavirus pandemic. KKR wrote down nearly $2 billion and injected another $650 million.
The initial restructuring forced Marelli to make painful decisions that cut costs and improve efficiency. But these made it vulnerable to a sudden reversal of property when key customers began to struggle with Nissan and Stellantis.
The situation allowed for tormented debt investors set the scene for the current struggle. Creditor negotiations have been going on for months and Marelli has been forced to defeat the debt as he searches for further cash injections.
Foreign lenders that manage 50% of their debt, including Deutsche Bank, are led by SVPs. They are looking for a variety of solutions, including funding when old and new loans become more advanced in other debt.
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These approaches were rejected because Japanese banks led by KKR and Mizuho searched for strategic buyers for the company. They say that if a company fell into ownership of a tormented debt, those familiar with the problem were aware of it.
Also, while the waterfront, which is deeply exposed to Nissan, was keen to find strategic buyers, KKR looked for an outlet that could help repair some of the damage done to its reputation in Japan.
Motherson finally made a “solid offer” in May, and was supported by many major auto companies.
In response to Motherson’s offer, the SVP has increased its own bids multiple times, including cash and debt components. Eventually, we reached a level where other creditors, including Mizho, tended to provide support. Mizuho, SVP and other creditors are expected to continue negotiations in the coming weeks.
Mizuho, KKR, Motherson and the foreign consortium declined to comment.
