Company overview

• Federal Mogul is a leading global supplier of vehicular parts, components and systems to customers in the automotive, small engine, heavy-duty and industrial markets.The company has an established, expansive global presence and conducts its operations through various manufacturing, distribution and technical centres
• Core product areas encompass powertrain, sealing systems & systems protection, friction and the aftermarket.The company provides products for both original equipment and parts replacement applications
• Principal customers include many of the world’s original equipment manufacturers of vehicles and industrial products, and aftermarket retailers and wholesalers. In the UK alone Federal Mogul employs over 4,000 people in well known automotive brands such as Ferodo brake pads and Champion spark plugs.

Events leading to the transaction:

• By October 2001, the Federal Mogul group faced a number of critical issues: significant operational underperformance associated with the global automotive industry, a shortfall in its main pension fund of approximately $3.5 billion, and worldwide litigation liabilities in respect of asbestos exposure estimated to exceed $5 billion, the latter through it’s ownership of Turner and Newall, historically the UK’s largest manufacturer of asbestos products
• In one of the largest cross-border restructuring proceedings in history, the UK Court Chancery Division appointed Kroll as administrators for Federal-Mogul group's UK based companies, an order which coincided with Federal Mogul’s voluntary filing for financial restructuring under Chapter 11 in the US
• As a company that had driven growth through acquisition, Federal Mogul held a significant proportion of its non-US assets through Turner and Newall, which resulted in a large concentration of global assets falling under the control of the UK administrators
• Following an intense period of negotiation, US restructuring proponents filed a global restructuring plan for Federal Mogul with the USA Bankruptcy Court, which sought to roll the global assets of the company into a newco, to be owned by its creditors, primarily by means of a trust established for the benefit of the asbestos claimants
• In order to ensure that the economic deal reached for the benefit of UK creditors in the global restructuring plan fairly reflected the considerable value of the assets under the control of the UK administrators, Close Brothers were appointed to establish the fair value of the assets on a multi-jurisdictional mandate and to advise on negotiations with the US plan proponents

Solution

• Close Brothers undertook detailed valuations of assets across Europe, the Middle East and Asia in a condensed timeframe and provided strategic advice both in respect of the funds flow resulting from potential realisation proceeds and in negotiations with Federal Mogul
• Close Brothers were instrumental in preparing the assets for a potential sale process to optimise both the strategic and financial value of the businesses. In the context of a complex corporate structure encompassing both subsidiaries and a number of third party joint ventures on a multi jurisdictional basis, we advised on the value maximising structure for the sale of the group businesses and mitigated the key issues that would go to the deliverability of a sale process
• Our unrivalled automotive sector expertise and access to a global buyer community ensured that maximum competitive tension was sustained throughout the process. This prompted the US plan proponents to offer a significant premium for the assets under the control of the administrators as part of a revised global restructuring agreement, to the benefit of the asbestos claimants and other creditors in the UK
• Federal Mogul is widely perceived to be the most complex international insolvency ever undertaken in the United Kingdom.