Delphi’s Turnaround Hinges on Weak Credit Markets

The troubled auto-parts maker asks for an extension in case its reorganization funding falls through.
Stephen TaubFebruary 29, 2008

Delphi Corp. has asked for an additional two months to put together a reorganization plan without outsiders getting involved. The bankrupt auto-parts maker filed the request with a New York bankruptcy court amid concerns about its ability to secure exit funding, according to press reports. Still, Delphi plans to emerge from Chapter 11 by the end of March, according to Reuters, citing a company spokesman.

The company said the current turmoil in the credit markets has made it more difficult to obtain exit financing, according to the wire service. In court papers, Delphi noted it wants the extension out of an “abundance of caution” and expects the plan would become effective “as soon as reasonably practicable,” according to Reuters. The extension would allow Delphi to retain control of its bankruptcy case, the Associated Press says.

Delphi — which has sought six extensions since filing for bankruptcy protection in October 2005 — is relying on the promise of $6.1 billion in loans to bring it out of Chapter 11, according to the AP.

The reorganization plan depends on an equity investment of as much as $2.55 billion from a group led by hedge fund Appaloosa Management, as well as a settlement deal with former parent General Motors, the AP says. The wire service notes that GM, which still buys parts from Delphi, may need to increase its contribution to the deal.

Meanwhile, the AP points out that part of the Appaloosa deal limits the amount of interest income Delphi can pay on the loans, making it less attractive for lenders. In addition, under the deal, the two lead loan arrangers are not required to take any unsubscribed loans, further complicating the completion of the reorganization, given the rough conditions in the credit markets these days.

Indeed, if the company does not secure the $6.1 billion in exit financing by the end of March, Appaloosa could walk away from the deal, which would jeopardize Delphi’s ability to emerge from bankruptcy.

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