Fri Jan 25, 9:00 PM
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By Tom Krisher, The Associated Press
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DETROIT - A federal bankruptcy judge has approved struggling auto parts maker Delphi Corp.'s reorganization plan, clearing the way for the company to emerge from Chapter 11 bankruptcy protection, Delphi said Friday.
U.S. Bankruptcy Judge Robert Drain in New York entered an order Friday confirming the plan, saying it had met all statutory requirements, Delphi said in a statement.
On Tuesday, Drain said he would approve the exit plan once Delphi drastically reduced cash bonuses for top executives, from a proposed $87 million to $16.5 million.
Delphi spokesman Lindsey Williams said the company reduced the payments to $16.5 million, and the board's compensation committee will decide how to distribute the money.
"We amended the plan to incorporate the comments made by the court such that the court could enter the confirmation order," Williams said.
Delphi said it plans to emerge from Chapter 11 "during the current calendar quarter following the syndication and closing of approximately $6.1 billion of exit financing facilities" and satisfaction of other conditions.
"Today's confirmation represents one of the most significant events of a very complex business reorganization to be completed during a challenging time in the automotive industry," Delphi Executive Chairman Robert S. "Steve" Miller said in a statement.
The other conditions include completing the stock purchase rights offering for creditors, the closing of an agreement with equity investors and settling all claims with Delphi's former parent, General Motors Corp.
Delphi's reorganization blueprint largely shifts its manufacturing to cheaper overseas plants and eliminates tens of thousands of union jobs in the U.S.
Troy, Mich.-based Delphi supplies some of the world's biggest automakers, including General Motors, Ford Motor Co., Volkswagen AG and Hyundai Motor Co. Its restructuring plan was created assuming a market value for the company of $12.8 billion, or $59.61 a share.
The company had intended to distribute the $87 million in bonuses to more than 500 managers upon emergence from bankruptcy protection.
But the United Auto Workers argued the payments would be unfair to union workers, many of whom took early retirement or buyout offers in order to help the company get out of bankruptcy.
The exit plan stands on several key pillars: a commitment by equity investors to inject up to $2.55 billion, a deal with GM over legacy labour obligations and agreements with labour unions that led to a massive reduction in the size of the unionized work force.
The reorganization plan was approved by 81 per cent of about 4,000 eligible creditors who voted. One class of creditors rejected it.
The UAW and other unions saw the elimination of 27,000 of 33,000 jobs over the course of the case.
Executive compensation was the most significant change to corporate bankruptcy law under a reform act put into effect in 2005, just nine days after Delphi filed for bankruptcy. The change was designed to prevent companies from giving executives retention bonuses.
In addition to agreements with unions, the company's future also depends heavily on a deal with new equity investors who will invest as much as $2.55 billion in exchange for new shares. Their total investment depends on demand for new shares among creditors.
The hedge fund Appaloosa Management LP is joined by five other investors: Harbinger Capital Partners Master Fund I Ltd.; Merrill Lynch, Pierce, Fenner & Smith Inc.; UBS Securities LLC; Pardus Capital Management LP, and Goldman Sachs Group Inc. Their commitment to invest billions may be put in jeopardy if Delphi doesn't get the exit loans it needs.
Delphi's unsecured creditors will receive 100 per cent on their claims as stock and rights to purchase discounted shares. Shareholders, who typically get nothing in bankruptcy cases, will have the right to buy new shares at a discounted price.
When Delphi has completed its restructuring, it will employ roughly 6,000 workers at eight U.S. plants and have reduced its hourly labour cost to $1.2 billion in 2007 from $3.1 billion in 2005.
It also will have shut down or sold 20 factories in the U.S. and one in Mexico. Delphi executives are looking for future growth from the company's operations in Europe, Asia and South America.
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AP Business Writer Vinnee Tong in New York contributed to this report.
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