Delphi set to emerge from four years of bankruptcy today

DETROIT (Oct. 6, 1:25 p.m. ET) -- Delphi Corp., the former parts unit of General Motors that became a multibillion-dollar liability to the automaker, is preparing to leave Chapter 11 bankruptcy today after four years of court protection.

The once-giant parts supplier must complete transactions to split the business between bankruptcy lenders, which will come away with the main global electronics business, and GM, which is taking back Delphi's money-losing U.S. manufacturing operations.

“Delphi is looking to complete the final stages of its Chapter 11 bankruptcy proceedings today,” said spokesman Lindsey Williams. The U.S. Bankruptcy Court in New York already has approved the supplier's restructuring plan.

Delphi filed its petition Oct. 8, 2005 -- and at the time it was the largest bankruptcy in the history of the U.S. auto industry. Since then, the case has been eclipsed by the bankruptcies at Chrysler and GM. And many more U.S. suppliers, including at least 20 this year alone, have followed Delphi into Bankruptcy Court.

Time and money

The case, which was nearly settled in April 2008, has cost Delphi more than $400 million in legal and professional fees during the four years of proceedings, the company has acknowledged.

Presiding over the bankruptcy has been Delphi Chairman Steve Miller, who at first took a hard-line public stance against pay and benefits paid to Delphi's unions.

Miller outraged the UAW by initially demanding that Delphi workers take a pay cut to about $10 an hour from $28 an hour. At that point, the UAW walked away from the bargaining table for more than a year, according to a source familiar with the talks.

After a few months Miller went silent when GM complained about him stirring up labor trouble. He told the Financial Times this week that he had second thoughts about that decision.

“We thought everything would just go quiet while we quietly work these things out,” Miller told the newspaper. “As it turned out, our critics did not go quiet. So what we ended up with was that all the savage abuse we took in the press went largely unanswered. I'm not sure whether that was the right thing. As a leader, I think you've got to speak out.”

Last year, a deal to sell the company to Appaloosa Capital Management LP fell through after the New York investor backed out of an agreement to invest $2.55 billion into the company.

A shadow of its former self

When Delphi emerges from bankruptcy, it will be owned by investors and banks led by the private equity firms Elliott Management and Silver Point Capital. Those companies lent Delphi the money to operate in bankruptcy. They won an auction over the private equity firm Platinum Equity by agreeing to forgive about $3.5 billion in debt for ownership of the emergent Delphi.

Delphi will be a shadow of its former self. It will leave Chapter 11 as largely an electronics and air-conditioning maker with a manufacturing footprint predominantly outside the United States. Delphi's post-bankruptcy annual revenue is expected to be less than $10 billion vs. $22.59 billion in 2005, the year Delphi entered bankruptcy.

GM is the other big player in the Delphi saga. The carmaker, which spun off the parts-making operations in 1999, has spent about $12.5 billion over the past four years to lend Delphi money, buy out UAW workers and take other obligations off the supplier's hands.

GM's role continues. The company has agreed to buy Delphi's global steering business and five U.S. plants whose hourly work force is represented by the UAW. Throughout the bankruptcy, Delphi remained GM's single largest supplier of parts.

As part of the bankruptcy transaction, GM will assume more than $1 billion in Delphi obligations and waive $2 billion in claims. The automaker also plans to invest $1.75 billion and provide loans to Delphi.

Delphi, of Troy, Mich., ranks No. 67 on the Plastics News list of the top North American injection molders. The company reported worldwide sales to automakers of $18.06 billion in 2008.

 

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