Mizuho Financial Inc., along with other lenders, is renegotiating with parts supplier Marelli Holdings Co- a KKR owned company about their debts and financing it to keep it operational.
Mareli was formed in 2019 when KKR merged its Magneti Marelli and Calsonic Kansei units. As per Bloomberg News, the auto parts company plans to file an alternative dispute resolution in Japan early next month. Marelli has at least $9.5 billion (1.1. trillion yen) total debts as of September.
If they are successful, the auto parts supplier to Stellantis NV and Nissan Motor Co. will finance the operations while renegotiating its debts with banks. If they are not successful in the ADR-based restructuring proposal, Marelli can face a court-directed debt resolution process which could force lenders to write off all or a portion of the loans to the company.
Dinesh Paliwal Partner in KKR had taken control of Marelli last year when the company’s sales had plummeted due to coronavirus pandemic where supply chain, chip availability, and manufacturing in the auto sector saw disruption globally.
Beda Bolzenius, CEO of Marelli, resigned last month as a part of the cost-cutting and restructuring exercise. Marelli operates in 170 locations employing about 54000 employees. It supplies air-conditioning, lighting systems, suspensions, electric motors, and other components to automakers globally.
Marelli and its main Banker, Mizuho, are looking for support from other lenders to proceed with the ADR application. Marelli had informed other banks that it had incurred loss in 2011, and its debt was likely to exceed its asset. The restructuring plan will take three to six months to implement.
Marelli, Mizuho, and Stellantis did not comment on the development.
Other banks are lining up financial support for 100 billion yen to prevent it from getting cash strapped during the ADR process. Mizuho will provide a bridge loan of 20 billion yen while considering whether it should allow Marelli to withdraw 40 billion yen of deposits with the Development Bank of Japan and itself.
Japan allows the ADR procedure for a company to renegotiate its debts when under financial constraint with its lenders while continuing to do business as usual. During the ADR process, negotiations between a company and its creditors are facilitated by three independent mediators with accounting and expertise selected by the Japanese Association of Turnaround Professionals and appointed by the economy ministry.
Paliwal, in a note outlining the challenges faced by Marelli, said that the company would seek a turnaround while trying to recapitalize in 2022. Marelli faced severe challenges due to a shortage of components, while one of its biggest customers, Nissan, posted its first operating loss after a decade.
Calsonic’s lenders include Sugimoto Mitsui Financial and Mitsubishi UFJ Financial, DBJ, and Mizuho Bank. The three major banks had raised their provision for losses in Marelli for the October – December quarter.
Representatives for Sumitomo Mitsui Financial Group, Mitsubishi UFJ Financial Group, and DBJ declined to comment.
Marelli had doubled its planned job cuts to 3000 after its September ADR rollout citing the company as having the highest fixed cost among its competitors.
