NEW YORK - Delphi Corp. advanced in efforts to exit bankruptcy when a federal bankruptcy judge approved a complex equity plan that will inject up to $3.4 billion into the auto-parts supplier.
Judge Robert Drain called it a "watershed event" yesterday as he approved a framework for approaching the remaining issues in the company's reorganization.
Under the plan, affiliates of three private equity investors - Appaloosa Management L.P., Cerberus Capital Management L.P. and Harbinger Capital Partners Master Fund I - along with Merrill Lynch & Co. and UBS Securities L.L.C. have the right to buy shares in a restructured Delphi for $1.4 billion to $3.4 billion.
Delphi board members chose the Appaloosa-Cerberus plan over a competing $4.7 billion offer by Highland Capital Management L.P., a current shareholder.
The plan is supported by General Motors Corp., which is Delphi's former parent and its biggest customer, as well as the company's labor unions and a committee of unsecured creditors.
Delphi executive chairman Robert S. Miller, who was chief executive officer until Jan. 1, said Thursday that the investor group brought with it the best chance of reaching settlements with the labor unions and GM.
The company announced yesterday that it had formally suspended litigation with GM and the unions over supply and labor contracts.
A principal of Highland, Patrick Daugherty, said Thursday that the company had no value unless it reaches those settlements, and a Delphi lawyer said the company would be unable to make progress in those negotiations without approval of the equity deal.
Appaloosa, which already owns about 9.3 percent of the company, and Cerberus would take the biggest stakes. The plan allows the investors to buy a minimum of 30 percent and up to 72 percent of the Troy, Mich.-based company, but that is contingent on the company's reaching agreements with its labor unions and GM by Jan. 31.
Delphi filed for bankruptcy in October 2005 as it suffered the downturn of the American auto industry.
Thousands of members of its two biggest unions, the UAW and the International Union of Electronic Workers-Communications Workers of America, have taken buyout and early-retirement offers.
The company plans to close or sell 21 of its 29 plants and focus on operating eight U.S. plants that make electronics, safety systems, heating and air conditioning systems, and some mechanical parts.