Delphi: We’re Rolling in Chap. 11 Loans

Last week, the company decided to add $254 million to its second-priority loans.
Stephen TaubMay 12, 2008

Delphi Corp., the bankrupt auto parts maker, is seeking approval from a bankruptcy judge to increase its loan package by $254 million because more lenders than expected are interested in lending the company money, according to Bloomberg.

Delphi’s debtor-in-possession loan facility was oversubscribed, enabling Delphi to restructure the loan on more favorable terms and increase total borrowings, according to the news service. “The debtors believe that during this period of unprecedented financial market volatility and uncertainty in the economy and the automotive industry, the additional liquidity resulting from the relief requested herein is of substantial value,” Delphi’s attorneys, Skadden, Arps, Slate, Meagher, and Flom, reportedly wrote in court papers.

The wire service explained that Delphi had previously planned to refinance prior bankruptcy loans with a $1 billion first-priority revolving loan, up to $600 million in first-priority term loans, and $2.5 billion in second-priority loans.

Last week, the company decided to add $254 million to the second-priority loans. Delphi also plans to increase the first-lien revolving credit line to $1.1 billion from $1 billion and cut the term loan to $500 million from $600 million. The company reportedly said in court papers that those changes “will save several hundred thousand dollars in interest expense per month.”

The company had hoped to emerge from bankruptcy in April. But early that month, Appaloosa Management, the hedge fund leading an investor group, backed out of its agreement to invest $2.55 billion in Delphi.

The hedge fund dropped out on the first day it could if Delphi hadn’t raised $6.1 billion in loans to help the company emerge from bankruptcy. The investor group, which also included Harbinger Capital Partners, UBS Securities, Goldman Sachs, and Pardus DPH Holding, asserted that Delphi breached its agreement with it.

On April 30, after the Appaloosa-led group backed out of the deal, U.S. Bankruptcy Judge Robert Drain granted Delphi an extension of its bankruptcy loan.

The judge had earlier okayed Delphi’s reorganization plan, which called for the company to repay creditors in full with a combination of new shares and warrants to buy additional stock, according to Bloomberg. It’s unclear whether Delphi will be able to find replacement funding for that plan.