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Court approves $2.55 billion Delphi plan
Bankruptcy judge OKs investors pumping funds into company for stocks

By Adam Schreck
AP Business Writer

NEW YORK — A bankruptcy court approved a plan Thursday to let a group of investors pump as much as $2.55 billion into Delphi Corp. in exchange for preferred and common stock in the reorganized auto parts maker.

The decision by the U.S. Bankruptcy Court for the Southern District of New York removes one of the last major obstacles facing the Troy, Mich.-based company, as it works to emerge from bankruptcy protection by the end of the year.

"This was a huge milestone today," said Robert S. "Steve" Miller, executive chairman of Delphi, following the decision. "A lot of the heavy lifting is done."

Delphi agreed to the deal with Appaloosa Management LP and other investment firms last month, but needed court approval before moving forward.

Under the terms of the cash-injection agreement, Appaloosa and its partners will buy $800 million in convertible preferred shares and about $175 million of common stock in Delphi. The investment group also agreed to buy any unsubscribed common shares remaining after a $1.6 billion rights offering to existing common stockholders.

In addition to Appaloosa, the investment group includes Harbinger Capital Partners Master Fund I Ltd.; Merrill Lynch, Pierce, Fenner & Smith Inc.; UBS Securities LLC; Goldman Sachs & Co.; and Pardus Capital Management L.P.

Tom Lauria, an attorney for Appaloosa, said the investment firm is "very enthusiastic" about working with Delphi.

"We'll get this company out of Chapter 11 as quickly as possible so it can resume its business in the real world," he said following the decision.

Earlier plan falls apart

Delphi struck the deal after it scrapped an earlier agreement, worth up to $3.4 billion, involving Appaloosa and other investors. That plan fell apart when one of the key investors, Cerberus Capital Management LP, decided to pull out shortly before it struck a deal to buy an 80 percent stake in Chrysler Group from DaimlerChrysler AG.

Pulling out of the agreement now would prove costly. According to a court filing, Delphi would owe Appaloosa an $82.5 million breakup fee if it ends the agreement in favor of another offer.

In opting for the deal, Delphi turned down an unsolicited proposal from Highland Capital Management LP. It said the only objection it received to its plan came from Highland.

U.S. Bankruptcy Judge Robert Drain made his decision quickly and with little comment. He called the investment agreement "an extremely important step."

The decision comes on the heels of an agreement between Delphi and the United Auto Workers, its biggest union. After two years of negotiations, the parts maker secured concessions in June from employees represented by the union that will result in pay cuts for longtime workers but keeps some plants once in jeopardy from closing.

Miller said Delphi has now reached agreements with four of its six unions and is in discussions with the remaining two, which he did not name.

He said the company remains committed to achieving a "consensual resolution" to its case, and plans to emerge from bankruptcy protection by year's end.

Delphi, the former parts division of General Motors, was spun off from the automaker in 1999. While GM remains Delphi's largest customer, more than half of Delphi's revenue now comes from other sources.

As part of its reorganization plan, Delphi expects to provide $2.70 billion in cash to GM. The auto maker has agreed to subsidize the wages of, and pay other costs for, some longtime Delphi employees, and will operate or find a third-party to run several of the parts company's factories.

Delphi entered bankruptcy protection in October 2005.

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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