www.finanznachrichten.de/ext/goto.asp?id=9344313Credit crunch hampers Delphi's recovery
The auto supplier is forced to cut more than $3B in payments to creditors including GM as part of an amended plan to exit bankruptcy.
October 30 2007: 1:53 PM EDT
DETROIT (Dow Jones/AP) -- Delphi Corp., the auto supplier trying to exit bankruptcy, said credit-market turmoil has forced it to seek a smaller financing package that cuts more than $3 billion in cash payments to its unsecured creditors and General Motors Corp.
According to court papers filed late Monday, Delphi's unsecured creditors will instead have the option to buy new Delphi stock at a discount through a rights offering. GM, Delphi's largest customer, will get a combination of cash, new debt and new convertible preferred stock.
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The scaled-back exit-financing would also squeeze Delphi's current shareholders. The shareholders will no longer be able to buy shares in the reorganized company at a discount, but they'll still have the option of purchasing up to 12.7 million shares of Delphi's new common stock at face value of $41.58 a share.
Delphi, formerly the auto-parts division of GM, originally sought to obtain about $8.7 billion in financing, including a $1.6 billion asset-based revolver, a $5.6 billion exit term loan and $1.5 billion unsecured notes. Now, the company is trying to ink a $6.8 billion deal that includes a $1.6 billion asset-based, first-lien revolver, a first-lien term loan of at least $3.7 billion and a senior secured second-lien loan of up to $1.5 billion.
In court papers, Delphi blamed its exit-financing troubles on a "severe dislocation in the capital markets." Delphi said it's in advanced discussions with "various" potential lenders and believes it will be successful in obtaining the financing.
Delphi Chief Restructuring Officer John Sheehan said the proposed changes to the Chapter 11 plan represent "further substantial progress" amid challenging economic conditions. The changes reflect an effective reduction of less than 5 percent in plan value, Sheehan said in a statement Tuesday.
Delphi, which is based in Troy, Mich., said it plans to present the exit-financing package to the U.S. Bankruptcy Court in Manhattan by Nov. 8. GM and the committee representing Delphi's unsecured creditors support the changes, but Delphi said the committee representing shareholders said it won't support a new reorganization plan that cuts their recovery.
According to court papers, the terms of Delphi's pact with a group of investors led by hedge fund Appaloosa Management LP will also change, but the amount of the group's $2.55 billion investment will stay the same. The investors will receive more direct subscription shares and preferred shares, but the price for the shares will drop.
Delphi's unsecured creditors, who were slated to be repaid 80 percent on their claims with Delphi's new common stock and 20 percent in cash, will instead get a higher percentage of stock and the option to buy additional shares at the discounted price of $34.98.
Instead of a $2.7 billion cash payment, GM (Charts, Fortune 500) will receive $750 million in cash, a $750 million second-lien note and $1.2 billion in junior convertible preferred stock.
Delphi's current shareholders lose the option to purchase up to 40.8 million shares of common stock through the discount rights offering but can still buy as many as 12.7 million shares for $41.58 per share. They'll also get warrants to purchase up to $1 billion in new common stock at $45 per share, but won't get the direct payment of about 1.5 million shares pledged under the original reorganization plan.
Delphi (Charts, Fortune 500) originally sought to exit Chapter 11 by the end of this year, but has since said it expects to exit in the first quarter of 2008. The company filed for bankruptcy on Oct. 8, 2005.
Several companies looking to line up financing to exit bankruptcy have run into trouble in recent months. A credit crunch, spurred by a crisis in the subprime-mortgage industry, has caused many lenders to retool the pricing and terms of the financing they provide to companies leaving bankruptcy.
Chemical company Solutia Inc (Charts). earlier this month said it may have to spend more to obtain the $2 billion in exit financing it needs to emerge from Chapter 11 protection. Power company Calpine Corp (Charts)., which lined up its $8 billion exit loan before the credit crunch, has said it needs to exit bankruptcy by the end of January or it could lose the loan.
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