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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 months-long fight over its future, involving banks, private equity giant KKR and leading distressed debt groups.
Marelli, headquartered in the Tokyo suburb of Saitama, has filed for Chapter 11 bankruptcy protection in the US state of Delaware. The move, giving it time to reorganise, involves bridge financing from foreign creditors led by hedge fund Strategic Value Partners, with SVP then in pole position to take over the debt-ridden group, according to people familiar with the matter.
“While we are pleased with our recent progress and profitability, industry-wide market pressures have created a gap in working capital that must be addressed,” said Marelli chief executive David Slump in a statement.
“After careful review of the company’s strategic alternatives, we have determined that entering the Chapter 11 process is the best path to strengthen Marelli’s balance sheet by converting debt to equity, while ensuring we continue operating as usual.”
The company said it had received a significant commitment for $1.1bn in debtor-in-possession financing from its lenders and they would take ownership of the business on emergence from Chapter 11, subject to a 45-day overbid process.
That window could allow Indian auto supplier Samvardhana Motherson Group — which, alongside SVP, has been the only other bidder — to make a renewed push. People familiar with its thinking suggest it is considering such a move.
The decision to seek court protection brings to a close the latest chapter in one of the most contentious, costly and publicly sensitive private equity deals in Japanese corporate history. It has cast a shadow over Marelli’s owner KKR, which has been seeking a buyer for the troubled group, and the rest of the industry.
The presence of the distressed debt funds, which include Fortress and Korea’s MBK, and the fact that this has spilled over to US courts has made it an “unprecedented” showdown, according to lawyers and bankers in Tokyo.
Marelli was created in 2019 after KKR’s Japanese car parts maker Calsonic Kansei acquired Italian business Magneti Marelli. Calsonic Kansei had been loaded with ¥1.1tn ($7.6bn) in debt, and about ¥700bn of that was used to finance the purchase.
The company had already undergone a major debt restructuring in Japan in 2022, when it saw haircuts of close to 40 per cent applied, after revenues plummeted during the coronavirus pandemic. KKR wrote off close to $2bn and injected a further $650mn.
The first restructuring forced Marelli to take painful decisions that lowered costs and improved efficiency. But these left it vulnerable to a sudden reversal in fortunes, when key customers Nissan and Stellantis began to struggle.
The situation allowed in the distressed debt investors and set the scene for the current struggle. Creditor negotiations have been going on for months, with Marelli being forced to roll over debt as it searched for further cash injections.
The foreign lenders, which control 50 per cent of the debt, include Deutsche Bank and are led by SVP. They have pushed for various solutions, including providing funds if their new and old loans were made senior to other debt.
Those approaches were rejected as KKR and the Japanese banks, led by Mizuho, searched for a strategic buyer for the company. They were conscious, say people familiar with the matter, that public perceptions could turn against them if the company fell into distressed debt ownership.
Mizuho, also heavily exposed to Nissan, was keen to find a strategic buyer, while KKR looked for an exit that would help repair some of the damage done to its reputation in Japan.
Motherson eventually made a “firm offer” in May, supported by a number of major car companies, letters from whom were seen by the Financial Times.
In response to the Motherson offer, SVP increased its own bid multiple times — including the cash and debt components — eventually hitting a level where other creditors, including Mizuho, were inclined to provide support. Mizuho, SVP and the other creditors are expected to continue negotiations in the coming weeks.
Mizuho, KKR, Motherson and the foreign consortium, declined to comment.