The challenge

In September 2020, Garrett Motion filed for voluntary Chapter 11 bankruptcy. Its treasury was tasked with operating liquidity and funding on a prefunded basis – a major constraint. To access sufficient funding throughout the Chapter 11 process, Garrett Motion raised a debtor-in-possession (DIP) financing. This was expensive and helped to exert less pressure on day-to-day cash – but placed more pressure on reporting. Treasury was required to report its financials to the DIP lenders.

As Garrett Motion proceeded through Chapter 11, there was a further burden on treasury: after it entered the bankruptcy process with a stalking horse bidder, high levels of additional due diligence were required.

Furthermore, Garrett Motion’s treasury team was growing. The company wanted to support, motivate and retain its treasury staff throughout the Chapter 11 process and create systems and processes that would attract further talent in the future.

The company’s global footprint in China, Brazil, Mexico, Ireland and other locations, meant there was a pressing need for a centralised management of global activity and funding needs, with the ability to optimise currency balances in an efficient manner.

“We required an automated, global, multi-currency solution which could meet our global funding needs, with the aim of placing excess liquidity within a secured account to comply with existing secured financing terms,” explains Cyril Grandjean, Group Treasurer.

The solution

Given the unique challenges and opportunities faced by Garrett Motion’s treasury team, the recommended solution was to implement a multi-currency notional pool, with two-way cross-border sweeps between unencumbered accounts. This was further enhanced with an automated end-of-day sweep of excess liquidity to a pledged account, ensuring effective risk management and compliance with financing arrangements. To implement the solution, the first step was to restructure the existing setup, ensuring a more robust and efficient liquidity structure for Garrett. This included a single entity multi-currency notional pool in Luxembourg across ten unencumbered currency accounts, which were previously encumbered under a Blocked Account Control Agreement (BACA).

To support liquidity optimisation and deployment, a new secured account was opened outside of the notional pool where excess liquidity is centralised on an automated basis each day – which also helped satisfy existing creditors. To create a truly seamless global funding structure, two-way cross-border sweeps were established across all regions, sweeping liquidity into the pool.

Best practice and innovation

This unique structure gives Garrett Motion’s treasury team the flexibility to manage its cash quickly and easily, no matter the location or currency. Uniquely, China is fully integrated into the notional pool, meaning Garrett Motion almost has its entire globally available cash centralised, with the only exceptions being Brazil, India, Thailand and Korea – countries where cross border cash concentration is restricted.

The solution has two layers. Firstly, the balances from each country or legal entity are concentrated into the treasury entity. Secondly, at the treasury centre level, Garrett Motion has been equipped with a notional pool in multiple currencies, automatically linked to a single pledged account to satisfy financing obligations.

This solution also allows treasury to avoid constantly carrying out FX swaps. This frees-up time for the treasury team to work on its priorities, structure and long-term projects rather than on time-consuming day-to-day swaps.

SWIFT implementation was accelerated after the emergence – because with J.P. Morgan, Garrett Motion now has the same banking partner almost everywhere. Before this solution was implemented, payment processing was fragmented, time consuming and costly. By contrast, SWIFT is now in place across the company’s international outposts, with new countries swiftly onboarded via J.P. Morgan’s processes.

Key benefits

• Cost savings.

• Number of banking partners/bank accounts reduced.

• Process efficiencies.

• Return on investment (ROI).

• Increased automation.

• Risk mitigated.

• Improved visibility.

• Manual intervention reduced.

• Increased system connectivity.

• Future-proof solution.

• Exceptional implementation (budget/time).

“This solution gives us a strong platform to expand our operations in future: whether we add more cash flows or new countries, they can be added swiftly and easily via a truly ‘plug-and-play’ system.”

Cyril Grandjean, Group Treasurer