Supplier Marelli selects KKR to lead turnaround, debt restructuring

Marelli Holdings, the auto supplier seeking to renegotiate its debt, selected current owner KKR & Co. as its sponsor in order to restructure the business.

Hiroshi Watanabe, a spokesman for Saitama, Japan-based Marelli, confirmed the decision following a meeting with creditors on Tuesday.

The company later issued a statement saying that a selection committee “concluded that the bid received from KKR is best suited to help Marelli restructure its financial position and revitalize its business.”

As part of the turnaround plan, Marelli is seeking the cancellation of about 450 billion yen ($3.5 billion) in debt, out of obligations of about 1.13 trillion yen, according to people with knowledge of the matter. Some of the debt will be converted into equity, said the people, who asked not to be identified because the negotiations aren’t public.  

A key supplier for automakers Nissan and Stellantis, Marelli filed in March for an alternative dispute resolution, or ADR, procedure in Japan, which lets a company under financial strain continue to operate while renegotiating its debt with creditors. Marelli was created in 2019 when KKR merged its Calsonic Kansei and Magneti Marelli units.

“We are pleased that the ADR mediator and Marelli have chosen KKR to continue our support of Marelli,” KKR said in a statement, adding that it “will continue to support Marelli as it works to position itself as an automotive leader for the future, notwithstanding the current challenges the industry is facing globally.”

KKR will write off 200 billion yen of its stake and put up $650 million in new capital to acquire new shares via a third-party allocation, the people said. The investor edged out Bain Capital and Apollo Global Management, which had joined forces to submit a counter-bid, people with knowledge of the matter have said.

Marelli’s revenue plummeted last year as the coronavirus pandemic took hold, disrupting supply chains, chip availability and automobile manufacturing across the globe. The company employs about 54,000 people and operates about 170 facilities around the world to manufacture lighting systems, air conditioning, electric motors, suspensions and other components for carmakers across the globe.

Marelli’s goal is to seek the approval of Mizuho Financial Group Inc. and other lenders at a creditors meeting in order to complete the ADR process. The ADR proposal can then be ratified at a formal meeting between Marelli and its lenders scheduled for June.

During the ADR process, negotiations between a company and its creditors are facilitated by an independent group of mediators with legal and accounting expertise, who are chosen by the Japanese Association of Turnaround Professionals and appointed by the economy ministry.

“We remain committed to working closely with our lenders for the duration of the process in order to reach a successful conclusion,” Marelli said in its statement.

Marelli ranks No. 18 on the Automotive News list of the 100 top global suppliers, with sales to automakers of $11.57 billion in fiscal year 2020.