DETROIT – Delphi Corp.’s lenders prevailed in a bankruptcy auction and are poised to take control of the bankrupt auto-parts supplier, beating back a government-orchestrated deal to sell the company to General Motors Co. and a California-based private-equity firm.
Delphi’s lenders prevailed in the auction by forgiving more than $3.4 billion in debt they are owed, a process known as credit bidding, The Wall Street Journal reported. The debt, a so-called debtor-in-possession loan, is owned by several investment funds including Elliott Management and Silver Point Capital.
The deal beat back Delphi’s latest plan to sell its assets to buyout firm Platinum Equity LLC and GM, Delphi’s former parent. Platinum, of Beverly Hills, Calif., had planned to take the parts maker out of bankruptcy in a $3.6 billion deal largely financed by GM, which has received billions in government loans.
But lenders complained the plan amounted to a sweetheart deal that would trample on their rights by paying them back at 20 cents on the dollar. Bankruptcy loans are typically paid back in full. A judge halted the Platinum deal and ordered Delphi to allow competing bids.
Delphi will ask a judge to approve the deal at a 10 a.m. hearing Wednesday in U.S. Bankruptcy Court. If the bankruptcy court doesn’t approve the deal, Delphi will attempt to complete the transaction through a so-called 363 asset sale, the company said in a statement. Such sales allow bankrupt companies to unload assets to buyers without creditors’ approval.
Delphi’s board approved the lenders’ bid late Monday after a two-day, round-the-clock auction in New York. Delphi said the deal would be “similar” to the original deal crafted with Platinum.
Delphi also said that GM and its lenders had modified financing agreements to provide “sufficient liquidity” until the deal is closed. Objections to the deal must be filed in court by 5 p.m. Tuesday, Delphi said.
In a statement, GM said it supported the bid by Delphi’s lenders, which “was deemed successful by Delphi and provided better economics to GM than that from Platinum Equity.”
The deal would cap a tumultuous trip through bankruptcy court for Delphi. It would also mark another significant milestone in the Obama administration’s effort to remake Detroit, even though the government’s proposed bid failed. GM needs a healthy Delphi to remain viable after its own record-speed trip through bankruptcy.
Delphi filed for bankruptcy in 2005 amid rising labor and raw materials costs and difficulty passing those costs on to GM and other auto makers. The case soon grew complex and bogged down.
Delphi management immediately clashed with its unionized work force. A little more than a year ago, Delphi appeared to have a deal with Appaloosa Management LP to emerge from court. But Appaloosa backed out.
In June, Delphi submitted a plan in which Platinum and GM would team to buy the parts maker. But U.S. Bankruptcy Judge Robert Drain ordered Delphi to hold an auction and allow competing bids to the government-brokered sale after lenders said the deal violated their rights.
As part of the lenders’ bid, GM will still take back four money-losing Delphi plants and the supplier’s steering business, said a person familiar with the deal. GM had planned to take on those responsibilities as part of the deal for Platinum to take over Delphi. GM would also contribute equity to Delphi when it emerges, this person said.
Platinum still hopes to have a role in Delphi’s restructuring, said a person familiar with the firm’s thinking. GM, Platinum and Delphi’s lenders had been working toward a three-way agreement but “the clock just ran out,” this person said.
“We look forward to working on the next phase of this process with Delphi, its lenders and General Motors — all of whom have acknowledged the value of Platinum Equity’s operating expertise,” a Platinum spokesman said.
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