What is the primary purpose of the Indemnification and Reimbursement Agreement?

The agreement is designed to transfer a significant portion of Honeywell's legacy asbestos and environmental liabilities, specifically those related to the Bendix business and Garrett's historical turbo operations, to the newly spun-off Garrett Motion Inc. entity. This allows Honeywell to move these liabilities off its balance sheet while ensuring they are managed by the business unit that generated them.

What is the financial impact of this agreement on Honeywell?

Honeywell will receive reimbursement for 90% of its payments related to these specific liabilities. While there's an annual cap of $175 million on Garrett's payments, this agreement significantly reduces Honeywell's exposure to these historical costs, providing greater financial clarity and predictability moving forward.

Are there any conditions that could prevent Garrett from making these payments?

Yes, the agreement includes provisions that allow Garrett to defer payments if doing so would cause it to breach certain financial covenants under its credit agreements, such as maximum total leverage ratio or minimum interest coverage ratio. This provides some protection for Garrett's financial stability post-spin-off.

How long will Honeywell continue to receive these reimbursements?

The reimbursement obligation is set to continue until December 31, 2048. However, it can conclude earlier if, for three consecutive years, the annual payment obligation (including any deferred amounts) falls below the equivalent of $25 million USD.

HON/HONIV 8-K: Material Agreements

Summary

Honeywell International Inc. (HON) filed an 8-K on September 14, 2018, detailing a material definitive agreement related to the previously announced spin-off of Garrett Motion Inc. The key agreement is an Indemnification and Reimbursement Agreement, where a Garrett subsidiary will assume responsibility for 90% of Honeywell's asbestos-related liability payments (primarily Bendix business in the US) and certain environmental liabilities associated with legacy Garrett turbo business operations. This arrangement includes legal costs and is offset by insurance and other recoveries, with an annual payment cap of $175 million (USD equivalent).

Key Highlights

1Honeywell has entered into an Indemnification and Reimbursement Agreement with a Garrett Motion Inc. subsidiary, effective September 12, 2018.
2Garrett's subsidiary will reimburse Honeywell for 90% of specific asbestos and environmental liabilities related to legacy Garrett turbo business operations.
3The agreement primarily covers liabilities from the Bendix business in the United States and certain other environmental and non-US asbestos liabilities.
4The annual payment obligation from Garrett's subsidiary to Honeywell is capped at $175 million (USD equivalent).
5Payments are subject to deferral if they would violate Garrett's debt covenants (leverage and interest coverage ratios).
6The reimbursement obligation extends until December 31, 2048, or until annual payments fall below $25 million for three consecutive years.

HONEYWELL INTERNATIONAL INC 8-K Report, Material Agreement (Sep 14, 2018)

Summary

Key Highlights

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