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UPDATE 1-KKR strikes deal to restructure German car repair chain ATU

* KKR shareholding will drop to about 3 pct

* ATU receives 100 million euros in fresh equity

* Debt decreased by 80 pct to 150 million euros

FRANKFURT, Dec 5 (Reuters) - Private equity group KKR has struck a deal to restructure the debt of loss-making German car repair chain Auto-Teile Unger (ATU), drawing a line under an ill-fated investment.

The companies have agreed on a debt-for-equity swap with ATU's main creditors, credit investment groups Centerbridge and Babson Capital, as well as funds managed by Goldman Sachs, ATU said in a statement on Thursday.

ATU, a household name in Germany, will gain fresh equity of about 100 million euros ($136 million) under the deal. Its debt will drop by more than 600 million euros to about 150 million euros, including a fresh credit line of 75 million euros from HayFin Capital Management.

Annual coupon payments will be reduced by more than 90 percent, ATU said.

KKR's equity stake will be reduced to about 3 percent, while private equity peer Centerbridge will become majority shareholder.

ATU is suffering from weak customer demand in the European car market, which has been a prime casualty of the continent's economic crisis as hard-pressed consumers defer purchases.

Online shops for car parts - such as Delticom - are also eating into its business.

Reuters first reported in August that KKR and Centerbridge were in talks over a debt-for-equity swap.

KKR bought ATU from private equity peer Doughty Hanson for 1.45 billion euros in 2004, financing the deal with large sums of debt, which was loaded on to ATU's books. In 2008 KKR injected about 140 million euros of equity to save its investment from bankruptcy.