Garrett Motion Bonds: 6.65% Yield with 2032 StabilityToday, I will be reviewing long-term bonds. These are eight-year bonds. They were issued back in 2024. These are securities from a company incorporated in Delaware, USA, headquarters in Switzerland. The logic is very simple- they have a fairly high coupon rate, potentially gaining a few percent from further Fed rate cuts (outcomes depend on policy pace).
Company Overview and Bond Performance
The story is a little scarier than conservative, but it is not speculative, and it is not for those who are ready for some sharp and rapid stories. This is Garrett Motion NASDAQ:GTX . I have been following their bonds for some time, and they have grown by almost 5% from their face value. I continue to follow them, but I also want to share this story with you because the returns are quite interesting and the risks are not so high. Garrett Motion is a company that caught my eye a long time ago. Nowadays, I occasionally monitor its bonds. It manufactures turbochargers for cars and automakers such as BSE:BMW , BET:MERCEDESBENZ , BMV:VOLVO/N , and VIE:FORD . Some Asian manufacturers are also included.
Historical Context and Restructuring
In general, a lot of cars we can find will have these turbochargers. The company has a rather interesting history. It was spun off from Honeywell in 2018. Honeywell is a company that was involved in manufacturing in various areas of the aerospace and automotive industries. However, it had a separate division for turbochargers. In 2018, Garrett Motion was spun off as a separate company. It was saddled with $3.7 billion in debt. This debt was related to harmful production. In fact, Honeywell relieved itself of the need to pay $3.7 billion in lawsuits. All of this was pinned on Garrett, and they started having problems. Due to COVID-19, there were problems with supply chains. Then, there was a restructuring in 2021. Problems arose with payments on lawsuits. Private funds wanted to buy out the company, make it private, and remove it from the stock exchange. But none of this happened. The debts were restructured. And since then, the company has managed to increase its profits and pay its debts fairly regularly.
Financial Details and Market Position
In 2024, bonds maturing in 2032 were issued with a coupon of 7.75%. However, their current price is around 105%. It is possible to try to find them slightly cheaper, but 105% is the approximate market price at which they can be purchased at present. Accordingly, with such a current yield, their maturity yield will be 6.65%. There are no problems with payments until 2032, because the company is profitable. Over the past 4 years, it has not had a single unprofitable year . Its debt has been reduced from $3.7 billion to $1.3 billion. They have huge EBITDA profitability, much higher than their competitors. This even corresponds to an A rating from industry rating agencies (right now, it's BB rating). In other words, in virtually all areas, this company is better than its competitors and analogues, as well as any other turbocharger manufacturers.
Risks and Future Outlook
One drawback is modest diversification. Those forecasting a rapid electric vehicle surge in five years might anticipate revenue and earnings erosion. Yet, mass electrification appears deferred somewhat, and with Euro 7 standards phased in through 2032–2034 , the firm seems positioned securely to retain until then. More stringent CO2 emission standards in 2025 and 2026, particularly in Europe, alongside consumer preference for internal combustion engine (ICE) and hybrid vehicles over battery electric vehicles (BEVs) in the near term, will push original equipment manufacturers (OEMs) to equip more models with turbochargers, boosting Garrett’s sales figures. Additionally, the transition to electrification, especially in Europe, has been deferred by about two years based on recent BEV adoption rates, while OEMs face tougher emission targets, necessitating higher ICE and hybrid sales. Turbochargers play a key role in reducing CO2 emissions and maximizing fuel efficiency for these vehicles.
Investment Perspective
So, lets summarize it all once again. We can get a 6.65% repayment in dollars, while gaining something from a further reduction in the rate, and this is all quite conservative, because the company feels very confident. I think that ratings will be raised in the near future, and the price of securities may rise a little more along with the Fed's rate cut.
