Delphi to ask judge for OK to sell assets

July 29, 2009

Delphi to ask judge for OK to sell assets

Lenders to forgive $3.4 billion in loans

BY JEWEL GOPWANI
FREE PRESS BUSINESS WRITER

In what could be the final step in Delphi Corp.’s nearly 4-year-old bankruptcy case, the Troy-based auto supplier is slated to ask a bankruptcy judge today for permission to sell most of its assets to its bankruptcy lenders.

If approved, the deal would hand operating control of four of the supplier’s U.S. plants and its international businesses to Delphi’s lenders, who would forgive $3.4 billion in loans they made to the supplier during its bankruptcy.

Delphi did not disclose the purchase price, but the deal includes an infusion of at least $2.25 billion from GM.

It also would send four other Delphi plants in the United States and Delphi’s global steering business back to GM, the supplier’s former parent.

The new deal is another twist in Delphi’s bankruptcy case, drawn out to nearly four years amid the automotive industry’s steep downturn, key investors dropping out of Delphi’s plans more than a year ago and most recently an auction of Delphi’s assets.

A bankruptcy judge ordered that the auction take place Friday and Monday because Delphi’s lenders — including hedge funds Elliott Management and Silver Point Capital — balked at a previous deal announced in June.

That prior deal was valued at $3.6 billion, including $2.5 billion from GM. It would have handed operating control of Delphi to Los Angeles-based private equity firm Platinum Equity — a firm led by Genesee Township native Tom Gores — and would have paid some lenders about 20 cents on the dollar.

Lenders making loans to insolvent companies in bankruptcy are usually paid in full.

Delphi’s directors agreed Monday that the lenders’ bid was the highest offer and pursuing a bid with Platinum would be too risky given the lenders’ opposition to the plan.

Platinum has said it is still in talks with Delphi and its lenders about making some kind of investment in the supplier.

If a judge approves Delphi’s deal with its lenders, it’s unclear who exactly will be operating Delphi.

"None of these funds are what you would call long-term players," said Jim Gillette, director of financial services at CSM Worldwide. "They could be hiring an outside firm to help them reorganize it so it becomes more salable in the long run."

Now, for Delphi’s lenders to make money on their investments, they’ll have to make Delphi profitable and ripe for sale, Gillette said.

Contact JEWEL GOPWANI: 313-223-4550 or jgopwani@freepress.com

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