Mizuho Financial Group and other lenders are in talks to renegotiate debt and offer financing to keep KKR-owned parts supplier Marelli Holdings operational. Marelli had around USD $10bn in debt as of last September.
If successful, Marelli will secure financing to keep operating while they renegotiate bank loans. If they fail to agree on the alternative dispute resolution-based restructuring plan, Marelli could face a court-led debt-resolution procedure, which could force the lenders to write off all or part of their loans to the supplier. A restructuring plan will be implemented within six months thereafter.
Marelli had informed some of the banks they had posted a net loss for 2021, and warned their debts would likely exceed assets. In a note outlining Marelli’s challenges to employees last year, Marelli executive chairman and KKR partner Dinesh Paliwal said the company will seek a turnaround while seeking to recapitalise this year: “we will continue to engage and negotiate with Marelli’s lenders to make sure that we receive support on the best of terms”. Paliwal also said Marelli aim to become one of the world’s five largest automotive suppliers based on revenue.
The coronavirus pandemic has caused deep challenges for Marelli, including shortages in components and raw materials. Just three months after rolling out a restructuring program in September, Marelli planned job cuts to more than 3,000 and shut down some locations. In the note to employees last year, Paliwal said the company have “the highest fixed cost among our competitors”. Each dollar of gross margin costs Marelli $2.72, compared with nine to 66 cents at their rivals. “This is not economically acceptable,” he wrote in the note. “Unfortunately, there is no alternative—decisive measures are needed to make our company fit for the future.”
