Business Context and Reporting Period
This Form 8-K was filed by Garrett Motion Inc. on May 29, 2020. The report addresses material disruptions to business operations caused by the COVID-19 pandemic and related response measures, which are expected to negatively impact financial performance for at least several quarters. The Company is incorporated in Delaware and operates globally, with principal executive offices in Rolle, Switzerland.
Key Financial Metrics and Covenant Status
The filing does not provide specific revenue, profit, cash flow, or margin figures for the current period, referencing instead the Form 10-Q filed on May 11, 2020. Key financial status points include:
- Covenant Compliance: The Company was in compliance with financial covenants under its Credit Agreement as of March 31, 2020.
- Projected Non-Compliance: Due to the pandemic, the Company expects to be unable to comply with the consolidated total leverage ratio covenant as early as the quarter ended June 30, 2020.
- Liquidity and Debt: The Company is actively negotiating with lenders for an amendment or waiver of the consolidated total leverage ratio covenant. No assurance of success is provided.
Material Changes and Contingencies
The primary material change involves a dispute with Honeywell International Inc. regarding the "Subordinated Indemnity" agreement dated September 12, 2018.
- Honeywell Notice of Default: On May 25, 2020, Honeywell issued a Notice alleging that Garrett's proposed amendments to its Credit Agreement constituted a default under the Subordinated Indemnity. Honeywell also demanded that Garrett suspend spending on a pending legal action against Honeywell.
- Company Response: Garrett disputes the default allegation, stating the proposed Credit Agreement amendments are in the best interest of shareholders and unrelated to the legal action against Honeywell. On May 28, 2020, Garrett demanded Honeywell withdraw the Notice and cease interference.
- Legal Action: Garrett is evaluating rights and remedies for losses attributable to Honeywell's alleged breaches and wrongful interference.
Guidance, Outlook, and Risks
Management expects financial performance to be materially negatively affected by the pandemic over the next several quarters. The Company is in active discussions with lenders regarding covenant waivers but notes there can be no assurance of success. Significant risks include:
- Failure to obtain a covenant amendment or waiver, potentially triggering an event of default under the Credit Agreement.
- Uncertainty regarding the outcome of the dispute with Honeywell and its impact on the Company's ability to secure necessary financing amendments.
- Continued operational disruptions in the global automotive industry due to COVID-19.
Investor Verification Checklist
- Verify the status of negotiations with lenders regarding the waiver of the consolidated total leverage ratio covenant.
- Monitor the outcome of the dispute with Honeywell and whether the "Notice of Default" is withdrawn.
- Review the Form 10-Q filed on May 11, 2020, for specific financial data regarding revenue, cash flow, and liquidity not detailed in this 8-K.
- Assess the potential impact of the Honeywell dispute on the Company's ability to secure necessary credit amendments.