Delphi Sale to GM, Lenders Wins U.S. Court Approval

Delphi Corp. cleared the final obstacle to exiting from almost four years of bankruptcy protection when it won court approval of its plan to sell most of its assets to lenders and former parent General Motors Co.

U.S. Bankruptcy Judge Robert Drain in New York today approved the auto-parts company’s request to amend its Chapter 11 plan and complete the asset transfers. Drain overruled objections to the plan that weren’t resolved yesterday.

Delphi’s bankruptcy lenders won an auction this week for the assets by bidding the value of debt they are owed under the company’s bankruptcy loan. GM supported the offer from lenders including Elliott Management Corp. and Silver Point Capital LP.

“The steering and other facilities are going to be absorbed into a healthier, reorganized GM, these other assets emerge with a lot less leverage on the balance sheet, and hopefully the company will have a fighting chance of being able to succeed,” said Bob Gordon, head of Detroit-based law firm Clark Hill PLC’s bankruptcy and restructuring group.

The carmaker plans to take over Delphi’s steering-component business and plants in Wyoming, Michigan; Kokomo, Indiana; and Rochester and Lockport, New York.

“Our attentions can now turn to closing the transaction as quickly as possible so that Delphi can complete its transformation,” Renee Rashid-Merem, a GM spokeswoman, said in an e-mailed statement following the ruling.

1,900 Objections

More than 1,900 objections to the plan were filed, mainly by former Delphi workers over cuts in severance and retirement benefits. Pension Benefit Guaranty Corp. agreed to take responsibility for funds covering 70,000 Delphi workers and retirees on July 22. PBGC said it expects to be responsible for shortfalls of about $6.2 billion for plans covering hourly and salaried employees.

The reorganized business to be owned by the lenders will probably continue using the Delphi name, Delphi lawyer John Butler Jr. said. Delphi Chief Executive Officer Rodney O’Neal will keep that job, a company spokesman said. Another company, DPH Holding Co., will emerge and liquidate Delphi’s remaining assets over time.

Elliott and Silver Point will lead a $750 million financing that will be offered through a syndication process to other lenders, Butler said.

‘Very Significant Commitment’

“It does represent and include a very significant commitment to continued funding from two primary DIP lenders Elliott Associates and Silver Point, as well as GM,” Drain said of the plan, referring to debtor-in-possession lenders.

Delphi, based in Troy, Michigan, previously accepted an offer from Detroit-based GM and private-equity firm Platinum Equity LLC to buy most of its business, valued by Delphi at $3.6 billion.

“We are excited to continue exploring ways to contribute to Delphi’s long-term health and profitability,” Platinum Equity said in an e-mailed statement.

According to a regulatory filing, Delphi owed about $3.3 billion on the three classes of its bankruptcy loan as of July 29. The bankruptcy loan matured in December. Delphi has been using borrowings from the loan incrementally since under “accommodation agreements” with its lenders. The lenders who owned pieces of the lowest-ranking portion of the debtor-in- possession loan said they would have recovered less than 20 cents on the dollar from the Platinum deal.

Auto Task Force

The U.S. Treasury’s auto task force, which oversaw the government’s purchase of most of the Detroit-based GM’s assets this month, blocked GM from providing emergence funding to Delphi. In April, the company’s bankruptcy lenders said they wouldn’t continue funding the company and suggested Delphi liquidate, Butler said.

Delphi’s board and management resisted and the lenders changed their outlook after Delphi struck a deal with Platinum, he said.

“They made a business decision that I respect,” Butler said of the lender group. “In terms of people changing their minds from what they had clearly said in April, you never know until you know.”

The lenders’ credit bid spawned an auction held at the New York offices of the law firm Skadden, Arps, Slate, Meagher & Flom LLP that involved more than 100 people and took more than 18 hours. On July 27, Delphi said the lenders’ bid won. Platinum will receive $30.5 million from GM and the lenders to cover expenses associated with its bid.

Court Protection

Delphi’s U.S. operations have been under court protection since October 2005. Delphi has been GM’s largest supplier since the carmaker spun off the parts unit in 1999. GM purchases from Delphi have ranged from $6.5 billion to $10.2 billion a year since 2005, according to the automaker’s most recent annual report. GM will save at least $250 million in the deal with the lenders, compared with the earlier deal with Platinum Equity, GM said today in a regulatory filing.

Delphi was wise to work out its own deal and not use its “major and critical role in the auto industry” as a bargaining chip to try to extract government funding, the judge said. He suggested Congress and the Obama administration wouldn’t have responded well to threats.

The company had won Drain’s approval in January 2008 of a bankruptcy plan that would have paid unsecured creditors in full with a combination of stock and warrants. Delphi wasn’t able to complete that plan after a group of investors led by Appaloosa Management LP backed out of a $2.55 billion deal to buy equity in its reorganized business in April 2008, on the day Delphi planned to emerge. Appaloosa said Delphi didn’t meet the deal’s terms and relied too heavily on GM for financing. Delphi said it complied with the terms.

The case is In re Delphi Corp., 05-44481, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

(Published by Bloomberg - July 30, 2009)


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