Delphi: We Want Time on Our Side

The beleaguered auto parts company asks its bankruptcy court for three more months to file its reorganization plan.
Stephen TaubDecember 4, 2007

Delphi Corp. has asked for three additional months to get its reorganization process under control. The company said in papers filed with the U.S. Bankruptcy Court in New York that the credit crunch has made it much harder to obtain exit financing, according to the Associated Press. The current deadline is December 31.

Delphi, which filed for bankruptcy in October 2005, also wants to delay until the end of May the deadline to obtain creditors’ support for its reorganization plan, the AP reported.

In late October the auto parts maker filed a number of amendments to its reorganization plan, including changes to its agreements with General Motors and investors, as a result of the turmoil in the credit markets. The amendments spell out a $2 billion reduction in debt upon the company’s emergence from bankruptcy.

Delphi cited in court papers “severe dislocations in the capital markets that began late in the second quarter of 2007 and that have increased in severity during the third and fourth quarters of 2007.” These issues are causing creditors to receive a less generous deal in the reorganization.

Under the revised plan, investors, led by Appaloosa Management L.P., will still purchase $800 million in convertible preferred stock and $175 million in new common stock. However, both investments reflect a lower assumed enterprise value.

General Motors will still recover $2.7 billion. However, instead of receiving all cash, it will get $750 million in cash, $750 million in a second-lien note, and $1.2 billion in junior convertible preferred stock.

Recovery for unsecured creditors was reduced to $13 billion from $13.9 billion, but they will get more common stock valued at a lower price and participation in a rights offering, rather than 80 percent common stock and 20 percent cash.

However, existing common stockholders will no longer be able to participate in the rights offering. The stockholders will still receive about 12.7 million shares, but at a lower purchase price. The arrangement regarding the warrants they will receive also was altered