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The stock market is at a very dynamic moment, due to the global pandemic. The March/April low was a once in a decade event. I invite all members with an interest in the market to join in discussion.

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Garrett Motion Exploring Options to Restructure Balance Sheet

Dow Jones Newswires  /  August 26, 2020
Garrett Motion  Inc. (Symbol GTX) on Wednesday said it is working with its financial and legal advisers to explore options for a restructuring of its balance sheet, a move it warned could wipe out current shareholders.

The Switzerland-based transportation-systems company warned that any actions it might take could materially reduce the value of its common shares, dilute existing holders or result in the cancellation of its existing common stock.

(Note that Garrett domiciled itself outside of the U.S. in Switzerland)

The former Honeywell unit said it is moving to address its balance-sheet concerns while its core business remains strong.

Garrett said its high leverage poses significant challenges to its overall strategic and financial flexibility, a situation made worse by a burdensome agreement with its former parent related to asbestos liabilities.

Garrett late last year sued Honeywell, alleging the conglomerate unilaterally imposed the "oppressive and unconscionable" 30-year indemnification agreement before its October 2018 spinoff.

Garrett said it has ample liquidity to support its current and future commitments [so why then explore options for a restructuring?], noting that it had $482 million in available cash and undrawn revolver capacity as of June 30.

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MarketWatch  /  September 21, 2020

Dallas Fed President Rob Kaplan on Monday said the new Federal Reserve forward guidance could create “fragilities” and “excesses” in financial markets.

Last week, the Fed promised to hold its policy rate close to 0% until inflation is on track to “moderately exceed” the central bank’s 2% target “for some time.”

Kaplan and Minnesota Fed President Neel Kashkari both disagreed with the framing of this so-called forward guidance, which offers provides market participants some guidance about the futures path of interest rates. The Federal Open Market Committee earlier this month debuted its new forward guidance. Kashkari said the problem with the Fed’s new guidance is that it still holds on to the importance of the unknowable variable of a maximum sustainable job level.

One reason for his opposition, Kaplan said, was it gives institutional investors a signal “you’re going to need to take more risks,” says Kaplan.

“Excessive risk taking...can create fragilities and other excesses in the system which are hard to see in real time and easier to see in hindsight and can create issues for us,” said Kaplan.

“I felt the costs were not worth the benefits,” he added.

The Dallas Fed president said there wasn’t much benefit from announcing forward guidance last week because financial markets already believe the Fed will hold its policy rate steady for years.

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Turbocharger maker Garrett files for Chapter 11 bankruptcy

Reuters  /  September 21, 2020

Auto supplier Garrett Motion Inc. said Sunday it filed for Chapter 11 bankruptcy protection as it struggled with heavy debt amid the COVID-19 pandemic and a dispute with former parent Honeywell International Inc. over asbestos liabilities.

Garrett Motion said it entered into a "stalking horse" purchase agreement with private equity firm KPS Capital Partners for $2.1 billion.

The stalking horse agreement would imply that any other bids that come in must be higher than the offer made by KPS. The agreement is subject to court approval.

Garrett Motion, which makes automotive turbochargers, said it's seeking court's approval for a $250 million debtor-in-possession financing facility. Throughout the reorganization process, Garrett Motion expects to operate without interruption.

The company listed both assets and liabilities in the range of $1 billion and $10 billion, according to a filing with the U.S Bankruptcy Court for the Southern District of New York.

Garrett Motion's largest customer is Ford Motor Co., which accounted for 12 percent of 2019 sales, according to its annual report.

Automakers and suppliers have been hit by the coronavirus outbreak, which led to shuttered vehicle factories 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," CEO Olivier Rabiller said in a statement.

The company has accused Honeywell of devising the spinoff of Garrett Motion, its transportation systems business, in late 2018 to offload Honeywell's liabilities related to asbestos-exposure claims.

Honeywell said Garrett was pursuing a bankruptcy "to avoid the legitimate and reasonable financial commitments" the company assumed as part of its spinoff in 2018.

"Garrett always has been capable of fulfilling those obligations with the assets it received in the spinoff," Honeywell said in a statement, adding that it was committed to engaging in a dialogue with the firm.

Garrett Motion said expects to emerge from the Chapter 11 and complete the sale process in early 2021.

Morgan Stanley and Perella Weinberg Partners served as financial advisers to Garrett Motion.

Sullivan & Cromwell LLP and Quinn Emanuel Urquhart & Sullivan LLP were legal advisers. AlixPartners served as Garret Motion's restructuring adviser.

Garrett Motion, tax domiciled in Rolle, Switzerland, saw 2019 sales of $3.25 billion.

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