By Andrew Scurria and Alexander Gladstone
Garrett Motion Inc. is in talks to sell itself out of bankruptcy to a private-equity firm, part of the auto supplier's strategy to quell a commercial dispute over asbestos-injury payments with Honeywell International Inc., according to people familiar with the matter.
Rolle, Switzerland-based Garrett is nearing an agreement to file for bankruptcy and tap private-equity firm KPS Capital Partners LP as the leading bidder to take control of the company through the chapter 11 proceeding, these people said.
The Wall Street Journal reported Thursday that Garrett was considering filing for bankruptcy within weeks to weather a sales slump stemming from the Covid-19 pandemic and costly obligations to Honeywell, the company's former parent, over asbestos liabilities.
Garrett is also negotiating for a roughly $250 million bankruptcy loan from top lenders to fund operations during chapter 11, people familiar with the matter said.
Under the company's restructuring proposal, which could still change, lenders would be paid nearly in full while some proceeds from the company's asset sale would fund a trust that would pursue litigation with Honeywell, these people said. The planned bankruptcy would include marketing the company to other potential buyers, one of the people said.
Garrett, KPS and Honeywell declined to comment. Garrett stock fell 17% Friday to just over $2 a share, having declined from $10 in January.
The company's financial woes stem in part from its 2018 spinoff from Honeywell. When they separated, the two companies agreed on how to split up the costs of defending and settling asbestos claims made by workers and others allegedly injured by Honeywell products.
In December, Garrett sued for a court order unwinding the reimbursement agreement, saying it unfairly favored Honeywell. Honeywell has defended the spinoff deal and has agreed to defer payments from Garrett through mid-2022 under certain conditions.
The company had said in August it hired legal and financial advisers to explore options to address a $1.4 billion debt load and warned that shareholder value could be diminished or wiped out.
Covid-19 also has pressured Garrett Motion and other auto suppliers throughout the U.S. as car companies have slowed down production, laid off workers and burned through cash.
The company's plants are bracing for the steepest drop in demand for automotive products since the 2008 financial crisis, Garrett said in its latest quarterly report. While the company reopened factories in China in the second quarter, the pandemic has forced it to close or reduce production in other parts of the world.
Write to Andrew Scurria at Andrew.Scurria@wsj.com and Alexander Gladstone at firstname.lastname@example.org