Japanese supplier Marelli enters court-led reorganization

Marelli, the supplier owned by KKR & Co., will enter court-led rehabilitation after failing to complete an alternative dispute resolution process in Japan that lets a company under financial strain continue to operate while renegotiating its debt with creditors.

Hiroshi Watanabe, a spokesman for Saitama, Japan-based Marelli, confirmed the outcome after a creditors meeting Friday.

As part of the turnaround plan, Marelli is seeking the cancellation of about 450 billion yen ($3.3 billion) in debt, out of total obligations of about 1.13 trillion yen, people with knowledge of the matter have said.

The new court-supervised phase, effectively an extension of the ADR process that simplifies the steps needed to reach resolution, is expected to take about a month.

A Marelli spokesman said the entire reorganization process would be handled in Japanese courts, so no Chapter 11 filing would be anticipated in the U.S. About 24 percent of the company's business with automakers takes place in North America, according to Automotive News research.

A key supplier for automakers Nissan and Stellantis, Marelli filed in March for an ADR procedure.

Nissan said in a statement that Marelli was "an important partner" and it would keep collaborating with it.

"Nissan believes that it is possible to continue stable business with Marelli and that there will be steady implementation of the rehabilitation plan for further growth," it said.

Stellantis declined to comment.

Last month, the supplier selected current owner KKR as its sponsor in order to restructure the business, which would essentially keep it as a key Marelli stakeholder.

“Scheduled to conclude in early August, the capital restructuring will comprise an injection of new equity capital by Marelli’s current shareholder KKR, and the reduction of the company’s existing bank debt,” Marelli said in a statement.

About 95 percent of Marelli’s lenders agreed on the plan, but that still fell short of the unanimous approval an ADR process usually requires.

Some of the debt will be converted into equity, said the people, who asked not to be identified because the negotiations are not public.  

“KKR is pleased with what today’s result means for Marelli Holdings,” KKR said in an emailed statement.

“We are fully prepared to extend additional financing to Marelli, as needed, to ensure that the company operates its business as usual through the proceedings.”

Marelli was created in 2019 when KKR merged its Calsonic Kansei and Magneti Marelli units.

KKR is planning to 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.

The court-led proceedings will let Marelli continue to operate with enough “financial liquidity to meet its obligations due to strong internal cash management,” as well as interim financing by KKR, the company 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 automakers across the globe.

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.

Marelli ranks No. 18 on the Automotive News'list of the top 100 global suppliers, with sales to automakers of $11.6 billion in 2020.

Reuters and Automotive News contributed to this report.