Delphi sold in $3.6B deal

Tuesday, June 2, 2009

Delphi sold in $3.6B deal

Transaction with private-equity firm may lift parts-maker out of bankruptcy

david Phillips / Special to The Detroit News

Detroit — While its former parent formally entered bankruptcy proceedings Monday, auto parts manufacturer Delphi Corp. reached a deal to sell the bulk of its assets to a private-equity firm and finally emerge from bankruptcy protection after nearly 4 years.

Parnassus Holdings II LLC, an affiliate of Platinum Equity, will buy a chunk of Delphi’s U.S. and foreign operations for about $3.6 billion, Delphi said Monday.

Under the plan, GM, which spun off Delphi in 1999, will reacquire some of the company’s North American plants, including its global steering business, and factories in Wyoming, Mich.; Lockport and Rochester, N.Y.; and Kokomo, Ind.

Delphi’s remaining "noncore" operations will be sold or discontinued. A final hearing on the plan is scheduled for July 23.

Delphi has been operating under bankruptcy protection since October 2005. "After an extended period of complex and challenging discussions with a wide range of stakeholders, we are confident that these modifications to our confirmed plan of reorganization will provide a resolution that will allow Delphi to emerge from Chapter 11," Delphi President and Chief Executive Rodney O’Neal said in a statement.

In addition, GM has agreed to assume additional retiree pension and health care obligations from Delphi as part of the plan.

While Delphi hopes to emerge from court protection, GM’s bankruptcy poses additional risks for auto parts makers struggling with lower industry output, high commodity prices and debt. Planned production cuts by GM and bankrupt Chrysler LLC will further squeeze cash-strapped suppliers.

GM spent $50 billion on parts and supplies from a network of 11,500 companies last year, and accounts for more than 30 percent of the revenue at more than 600 suppliers, including American Axle & Manufacturing Inc. The automaker plans to slash the number of direct suppliers it uses across North America from 1,400 to 1,100 by the end of 2011.

The collapse of new car and truck demand has forced Visteon Corp., Metaldyne Corp. and other auto parts makers to seek bankruptcy protection this year.

In addition to American Axle, analysts say Lear Corp. and TRW Automotive Holdings Inc. are more vulnerable in the wake of GM’s bankruptcy.

"We expect the Detroit automakers to collectively lose share to foreign brands in 2009," Standard & Poor’s analyst Ephraim Levy said Monday. "The greater a supplier’s exposure to U.S.-based companies, the greater the impact on its performance."

Lower output, pricing pressure from manufacturers and high commodity prices will hamper auto parts manufacturers’ profits in 2009.

"Although some U.S.-based auto parts makers have exited or are progressing toward exiting bankruptcy proceedings, others, especially relatively smaller companies, are under duress and risk entering bankruptcy, in our view, if they do not get support from parts and vehicle manufacturing customers," Levy said.

Lear, a major GM supplier, said Monday it would delay interest payments of about $38 million pending the outcome of talks with lenders. Lear executives said the company prefers to restructure out of bankruptcy.

The federal government is offering up to $5 billion in aid to help struggling automakers, but there are no plans to enhance the program.

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