Delphi Announces $3.4B Refinancing Plan

The embattled auto parts supplier agrees to use investor money to fuel its turnaround efforts.
Stephen TaubDecember 18, 2006

Delphi Corp. has accepted $3.4 billion in financing from a group of investors as part of a reorganization plan to help the auto parts maker emerge from bankruptcy.

The investment group includes affiliates of Appaloosa Management L.P., Cerberus Capital Management, L.P., and Harbinger Capital Partners Master Fund I, Ltd., as well as Merrill Lynch & Co. and UBS Securities LLC. The announcement is part of a reorganization framework plan with its former parent company, General Motors, and Delphi’s investors.

Separately, Delphi accepted a proposal from JPMorgan Chase Bank N.A. and a group of lenders to refinance the company’s existing $2 billion DIP (debtor-in-possession) facility and roughly $2.5 billion in loans.

Delphi also announced that president and chief operating officer Rodney O’Neal will become CEO, effective January 1. He will replace chairman and chief executive Steve Miller, who will step down as CEO.

The financing will fund about $3.5 billion of Delphi’s pension obligations. The company has agreed that as much as $2 billion of this amount may be satisfied through GM taking on Delphi’s net pension obligations.

“With this funding, Delphi will be able to preserve its pension plans and become fully funded to the extent required by ERISA [Employee Retirement Income Security Act],” said Miller in a statement. “While other major Chapter 11 labor transformation cases have regrettably had to terminate their pension plans as part of their restructuring, Delphi has expended a great deal of effort and energy to save our employees’ pensions.”

Under the terms of the equity purchase and commitment agreement, the investors will purchase $1.2 billion of convertible preferred stock and approximately $200 million of common stock in the reorganized company. In addition, they will agree to purchase any unsubscribed shares of common stock connected to an approximately $2 billion rights offering that will be available to existing common stockholders.

Delphi said it is seeking the U.S. Bankruptcy Court of the Southern District of New York’s approval of the deals and will file agreements with the Securities and Exchange Commission.

“Today’s agreements represent significant milestones in Delphi’s reorganization and another major step forward towards emergence from our Chapter 11 reorganization in the U.S.,” said Miller.