Marelli, a major automotive parts supplier for Nissan and Stellantis, has filed for bankruptcy protection under Chapter 11 in the United States.
In a surprising turn of events, Marelli, the Italian-Japanese tier one automotive parts supplier, has filed for Chapter 11 bankruptcy with the US courts on June 12, 2023. The company, owned by the US private equity firm KKR, has been dealing with a series of challenges that led to this decision.
Marelli, a key supplier to both Nissan and Stellantis, provides a wide range of components, from lighting and interior parts to propulsion, exhaust, and chassis parts. The company's assets and liabilities are reported to range between $1 billion and $10 billion, according to a filing.
The Covid-19 pandemic played a significant role in Marelli's financial woes, with the company's plants being shut down during the pandemic. This, coupled with the high fixed costs that Marelli has been operating with, as noted by Chairman Dinesh Paliwal, has put the company in a precarious financial position.
However, Marelli is not leaving the situation without a fight. The company has submitted motions that would allow it to continue operations throughout the Chapter 11 process, including the continuation of programs that are integral to customer relationships. Marelli also expects no disruption from the filing and will continue to supply OEMs, such as Nissan and Stellantis, as normal.
Nissan, for its part, has expressed support for Marelli's efforts to minimize operational disruption during the Chapter 11 process. The Japanese automaker is implementing a multi-pillar approach for supply chain management, which includes increased visibility into its tier-n suppliers through digital tools. This approach may prove key in managing situations like Marelli's.
Marelli's Chapter 11 filing is intended to strengthen its balance sheet by converting debt to equity. The company has received additional financing of $1.1 billion in debtor-in-processing (DIP) financing. Moreover, 80% of Marelli's lenders have signed a Restructuring Support Agreement. The agreement aims to deleverage Marelli's balance and see the DIP lenders take ownership of the business following both the Chapter 11 process and a 45-day overbid process.
Rumours of a potential buyer for Marelli have circulated in connection with the company's Chapter 11 restructuring. The Indian company Tata is one such rumoured buyer, with the Motherson Group, another Indian supplier, also mentioned as a potential bidder.
The 45-day overbid process allows other companies to purchase Marelli, offering a glimmer of hope for the troubled parts supplier. As the situation unfolds, the automotive industry and its stakeholders will be closely watching Marelli's journey through the Chapter 11 process.
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