Delphi to drop pensions

Thursday, July 30, 2009

Delphi to drop pensions

David Shepardson / Detroit News Washington Bureau

New York — A U.S. bankruptcy judge gave Delphi Corp. the go-ahead to abandon its pension obligations, bringing the supplier another step closer to exiting bankruptcy.

The Troy-based auto supplier was poised to win approval from a bankruptcy court judge as early as today.

U.S. Bankruptcy Judge Robert Drain denied objections from more than 1,000 retirees and three small unions to Delphi’s plan to end its pension obligations. Drain said he wouldn’t make a final ruling until this morning on approving the revised plan.. Drain said late Wednesday that Delphi had "exercised valid business judgment" in formulating its revised bankruptcy exit plan.

Delphi disclosed last week it would move to cancel its pension obligations in an attempt to finally exit bankruptcy after nearly four years. Delphi attorney Jack Butler told reporters that Delphi is targeting an exit date of Aug. 31, but is more likely to exit by Sept. 30.

The company had initially vowed to continue to pay its pension obligations, but as the auto industry has deteriorated, Delphi has had to slash expenses and develop a new exit plan.

Abandoning its pension obligations would saddle the Pension Benefit Guaranty Corp. with a $6.2 billion liability. Some younger retirees could see a 50 percent cut in their benefits.

"The reality of the world we are in right now is that we are not able to finance these plans," Delphi lawyer Jack Butler said.

Delphi has already canceled its life insurance and health insurance for salaried retirees, saving $70 million annually. The company has $200 million in unpaid salaried pension plans that are due now and are underfunded by $3 billion.

The pensions "cannot be funded going forward," Drain ruled, saying Delphi had properly exercised its business judgment.

General Motors Co. will make up the losses of UAW hourly retirees who see a reduction in their pension benefits. But GM didn’t do the same for 120 hourly workers and retirees represented by three smaller unions. Drain rejected the unions’ objections.

Drain also dismissed some objections over severance from 600 former employees, saying a deal with the lenders resolved them. The plan allows for payment of 75 percent of a former employee’s remaining severance payments, in a lump sum, immediately.

Drain rejected an objection from the Michigan Workers Compensation Agency, which said Delphi owes $121 million in claims and $24 million in annual payments. Drain said Michigan had failed to file a timely claim and that Delphi’s "resources are not sufficient" to pay all of its creditors.

He also said federal bankruptcy law pre-empts state laws that require priority for payment of workers’ compensation claims. Wednesday’s hearing came after a lengthy auction. The auction began at 1 p.m. Sunday and ended at 7 p.m. Monday.

Late Monday, the company’s board agreed to back a bid for most of Delphi’s assets offered by those that had loaned it $3.5 billion during bankruptcy.

Delphi’s lenders include Elliott Management, Silver Point Capital and Monarch Alternative Capital. They have hired automotive consultants and are poised to take control of Delphi.

The board rejected a bid that had been backed by the Treasury Department and GM. A California private equity fund, Platinum Equity LLC, had agreed to buy Delphi in a $3.6 billion deal with $2.5 billion financing from GM.

When Delphi emerges, it will be a shadow of its former self. The company had 37 U.S. factories and about 80,000 U.S. employees after GM spun off the parts maker in 1999.

But by late this year, Delphi will have shrunk to four U.S. plants, including one in Warren, and trimmed its U.S. work force to 12,700 employees.

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