NERA Expert Retained to Analyze Asbestos Liabilities and Proof of Claim in Bankruptcy

The Situation

In October 2018, Honeywell spun off Garrett Motion, which designs, manufactures, and sells turbocharger, electric-boosting, and connected vehicle technologies for automobiles. As part of the spin-off, Honeywell allocated its asbestos liabilities from the Bendix Corporation—a brakes manufacturer—to Garrett Motion through an indemnification agreement. Garrett Motion filed a lawsuit against Honeywell over the indemnification agreement in December 2019, then filed for voluntary Chapter 11 bankruptcy reorganization in September 2020. Honeywell filed a proof of claim in the bankruptcy of $1.746 billion, the majority of which was related to current and future asbestos liabilities.

NERA's Role

NERA was retained to evaluate Honeywell’s estimate of its asbestos liabilities, including assessing the incidence model, quality of claims, and inputs and assumptions on the forecast and valuation of claims. In addition, NERA examined the impact of punitive damages on tort settlement amounts and the contribution of punitive damages in trial verdict awards.

NERA also estimated discount rates appropriate for the Honeywell claim in the Garrett Motion bankruptcy based on Honeywell’s capital structure, market data on Honeywell’s debt and equity, features of the indemnification agreements between Honeywell and Garrett Motion, and simulations of Garrett Motion’s financial performance.

The Result

The results of the analyses were used in mediation proceedings and other negotiations between the parties. Garrett Motion settled shortly before trial and Garrett emerged from bankruptcy in April 2021.