Recently, Marelli, a major global auto parts supplier formed through the merger of Japan’s Calsonic Kansei and Italy’s Magneti Marelli, has been reportedly heading toward bankruptcy. This article explores the background and issues surrounding Marelli’s financial collapse, the nature of its main investor KKR, and the significance of a potential Chapter 11 filing under U.S. bankruptcy law.
The Downfall of Marelli: Key Issues
Marelli was established in 2019 through the merger of Calsonic Kansei and Magneti Marelli. Headquartered in Saitama, Japan, the company operates in 23 countries and employs approximately 45,000 people worldwide. Its main businesses include automotive lighting, electronic systems, interior experience, propulsion solutions, ride dynamics, and green technology. It supplies parts to major automakers such as Nissan and Stellantis.
However, the company faced severe challenges after the merger. The acquisition of Magneti Marelli was financed through significant debt, which became a heavy burden. Combined with the post-2019 decline in revenue due to the poor performance of Nissan and Stellantis, the COVID-19 pandemic, and global semiconductor shortages, Marelli’s financial condition deteriorated rapidly. Cultural and managerial differences between the Japanese and Italian sides also hindered integration efforts, and cost-saving synergies were limited. The high dependency on a few major customers further delayed diversification. In 2022, Marelli filed for Civil Rehabilitation in Japan and remains in restructuring.
KKR’s Investment Approach and Bankruptcy Track Record
KKR (Kohlberg Kravis Roberts), the private equity fund backing Marelli, plays a significant role in this case. Founded in 1976, KKR is one of the world’s largest private equity firms, known for acquiring companies during growth or maturity phases, improving operations, and increasing corporate value. A core strategy is leveraged buyouts (LBOs), where acquisitions are funded using significant debt secured by the target company’s assets and cash flow.
While KKR itself has never gone bankrupt, several of its portfolio companies have filed for bankruptcy. Examples include Toys “R” Us in 2017 and Envision Healthcare more recently. Over the past decade, seven KKR-affiliated companies are reported to have filed for bankruptcy.
Does KKR Benefit from Bankruptcy?
Contrary to some speculation, it is not necessarily in a private equity fund’s interest to drive its portfolio companies into bankruptcy. The primary goal is to enhance enterprise value and generate stable returns. Bankruptcy is typically viewed as a failure or risk realization. However, legal restructuring can offer a second chance by shedding debt and continuing business through a new company, in which the fund may reinvest for future growth. Still, in many cases, funds lose much of their invested capital in bankruptcy proceedings.
Chapter 11: Creditor Priority and Shareholder Risk
Marelli is reportedly considering a Chapter 11 filing under the U.S. Bankruptcy Code. Chapter 11 allows distressed companies to continue operations while restructuring debts. It follows the “absolute priority rule,” which places creditors’ rights above shareholders’.
Specifically, secured creditors are paid first, followed by priority unsecured creditors (e.g., taxes and unpaid wages), and then general unsecured creditors (e.g., suppliers and banks). Shareholders are last in line and often lose their equity unless all creditors are paid in full or they provide new capital.
Why Consider Chapter 11 in the U.S., Not Japan?
Marelli’s consideration of Chapter 11 in the U.S. — instead of continuing with Japan’s Civil Rehabilitation — appears driven by several factors: the composition of creditors, global operations, and the rigid nature of Japan’s out-of-court restructuring. Key creditors, especially foreign financial institutions, have reportedly resisted the Japanese workout proposals, increasing the risk of operational disruption. Chapter 11 offers more flexible tools, including automatic stays, class-based creditor voting, and global asset coordination — all of which are attractive to multinational firms.
Additionally, a Chapter 11 filing can include not only U.S.-based entities but also group affiliates, making it a potentially comprehensive restructuring solution.
Eligibility Criteria for Chapter 11
Can a Japanese company with only European subsidiaries file for Chapter 11 in the U.S.? The answer depends on whether the company has assets or business operations in the United States. According to Section 109 of the U.S. Bankruptcy Code, foreign entities may qualify for Chapter 11 if they have any U.S.-based assets or offices — including bank accounts, real estate, or intellectual property. There’s no minimum asset requirement.
However, simply having operations in Europe does not qualify a company for Chapter 11. Without U.S. assets or a presence, Chapter 11 is generally not an option. But even a small U.S. office or asset could make a foreign company eligible.
Implications for Credit Risk Management: Shareholder Type Matters
At Naker Rating, we believe that companies with corporate shareholders — particularly business groups — tend to exhibit more stability during crises due to their ability to inject emergency funds. For example, when a business group holds equity, internal financing and strategic support can often reinforce a company’s financial standing.
In contrast, companies owned by private equity funds such as KKR may initially benefit from strong capital backing. However, funds are driven by return on investment. If a turnaround seems unlikely, they tend to act decisively — withdrawing support, initiating legal procedures, or selling the business. This reflects their fiduciary duty to investors and a preference for rational, not emotional, decision-making.
Takeaways for Credit Professionals
Credit analysts and risk managers should closely examine a company’s shareholder structure. The nature of its capital — whether held by corporations or private equity funds — can significantly influence the company’s risk profile and crisis response. While PE-backed firms may be well-funded, their continuity hinges on profitability and feasibility of recovery. By contrast, corporate shareholders may prioritize long-term stability, even at the cost of short-term returns.
In conclusion, stakeholder identity matters. Incorporate it into your risk assessments and credit decisions.
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