Pouring Money Down the Drain?

Delphi's bid for $300 million in additional financing from GM is "beyond comprehension" for a company losing "staggering sums of money," hedge fund...
Stephen TaubAugust 22, 2008

One of the hedge-fund giants that recently walked away from an earlier commitment to provide financing for the reorganization of Delphi Corp. now opposes the auto-parts maker’s plan to borrow an additional $300 million from former parent General Motors, according to Reuters.

Highland Capital Management said in court documents that Delphi’s North American operations “continue to lose staggering sums of money, and drag down the rest of the business,” according to the wire service.

As a result, recoveries for unsecured creditors in the bankruptcy case were certain to be eroded by the financing, the hedge fund added. “The Debtors’ continued willingness to operate a money-losing business that burns cash for the benefit of GM is beyond comprehension,” Highland reportedly said in the court papers.

In early August, GM agreed to increase its loan to Delphi by $300 million, to $950 million.

Getting the new cash is conditioned on Delphi filing modifications to its reorganization plan by October 31, according to an earlier announcement from Delphi. The company had said in court papers that it needs the additional money to maintain a minimum level of liquidity.

Last month a U.S. bankruptcy judge allowed Delphi to move forward with a lawsuit that seeks to force hedge fund Appaloosa Management LP to complete its deal to invest in the company. The judge refused a request by Appaloosa and other investors to dismiss the case.

The suit alleges fraud and breach of contract when the hedge funds tried to walk away from their commitment to participate in a $2.55 billion equity deal. Appaloosa, Harbinger Capital Partners Master Fund I Ltd., and Pardus Capital Management LP each created investment vehicles to participate in the deal.