Delphi proposes plan, investment agreement changes to reflect reduction in cash for distributions

By Caroline Salls

Pittsburgh, Oct. 30 - Delphi Corp. proposed amendments to its joint plan of reorganization and related disclosure statement late Monday with the U.S. Bankruptcy Court for the Southern District of New York prompted by a $3 billion reduction in cash available for plan distributions.

The court established a timetable for the potential amendments at the first disclosure statement approval hearing on Oct. 3. The hearing is scheduled to continue on Nov. 8.

According to the notice of potential amendments filed Monday, since the company filed its original plan in September, the financing terms assumed in the plan have not been available.

As a result, Delphi has been forced to seek a modified exit financing strategy that will result in less cash available for use as currency in the plan.

Specifically, Delphi said its reduced exit financing package will not provide enough cash to make more than $3 billion in cash distributions to its unsecured creditors and General Motors Corp.

In addition, Delphi said its 2008 business plan has been revised to reflect reduced volume production forecasts for General Motors North America and to account for the revised capital structure developed with Delphi's official committee of unsecured creditors, the plan investors led by Appaloosa Management LP affiliate A-D Acquisition Holdings, LLC and General Motors.

Under the amendments, the investors proposed changes to the conversion terms of their proposed purchase of $800 million in preferred stock, and the amended investment agreement will now include a $1.575 billion discount rights offering for Delphi's unsecured creditors.

The company said it now expects to exit bankruptcy in the first quarter of 2008 with a $1.6 billion asset-based revolving exit loan, $3.7 billion in first-lien funded financing and $1.5 billion in second-lien funded financing.

Originally, the company was seeking up to $7.5 billion in funded debt and a $1.6 billion asset-based revolver, but Delphi said it reduced proposed debt levels to facilitate an emergence financing package that could be executed under existing market conditions.

Delphi said it expects to enter into a "best efforts" financing arrangement with one or more nationally recognized investment banks by Nov. 7. The hearing on approval of the exit financing would then be held Nov. 29.

Equity committee withdraws support

The potential amendments also reflect reductions in stakeholder distributions to some junior creditors and interest holders.

Delphi said the creditors committee, GM and the plan investors support the potential amendments, but the company's official committee of equity security holders said it will no longer support the company's plan if it is amended to reduce recoveries to common stockholders.

As a result, Delphi said the equity committee is expected to object to the amendments and ask the court to postpone the disclosure statement hearing.

"Last evening's filings represent further substantial progress in our Chapter 11 cases in a challenging capital markets environment," Delphi vice president and chief restructuring officer John Sheehan said in the release.

"These very focused potential amendments reflect current market conditions, commensurate changes to our proposed emergence capital structure and form of plan currency contemplated for stakeholder distributions, and an effective reduction of less than 5% in plan value to reflect macroeconomic and industry conditions and uncertainties."

Investor agreement and recovery changes

Specifically, the potential changes to the plan investors' direct investment and some stakeholder recoveries include:

• The investors would purchase $400 million of series A preferred stock convertible at an assumed enterprise value of $10.80 billion, reduced from an $11.75 billion assumed enterprise value under the original plan;

• The investors would purchase $400 million of series B preferred stock convertible at an assumed enterprise value of $11.8 billion reduced from $12.8 billion under the original plan;

• The investors would purchase $175 million of new common stock at an assumed plan value of $11.8 billion, reduced from $12.8 billion under the original plan;

• The plan investors will now receive 5 million direct subscription shares and 24.92 million preferred shares under their equity purchase commitment agreement, compared with 4.56 million direct subscription shares and 12.21 million preferred shares under the original plan;

• GM's $2.7 billion recovery would include $750 million in cash, a $750 million second-lien note and $1.2 billion in junior convertible preferred stock. Under the original plan, all $2.7 billion was to be paid in cash;

• Unsecured creditors would receive par plus accrued recovery at a $13 billion plan value, including 92.4% in new common stock valued at $41.58 per share and 7.6% through participation in the discount rights offering at $34.98 per share. Under the original plan, unsecured creditors were slated to receive par plus accrued recovery at a plan value of $13.9 billion, including 80% in new common stock valued at $45 per share and 20% in cash;

• TOPrS creditors would receive par plus accrued recovery at a $13 billion plan value, including 92.4% in new common stock valued at $41.58 per share and 7.6% through participation in the discount rights offering at $34.98 per share. Under the original plan, these creditors were scheduled to receive par plus accrued recovery at a $13.9 billion plan value all in new common stock valued at $45 per share;

• Holders of existing common stock would receive par value rights to buy 12.71 million shares of new common stock at a purchase price of $41.58 per share, compared to a $45-per-share purchase price under the original plan; and

• Existing common stockholders would also receive warrants to buy $1 billion of new common stock at $45 per share, exercisable for six months after Delphi's emergence from bankruptcy, with no provision for direct distribution. Under the original plan, stockholders were set to receive warrants to buy an additional 5% of new common stock at $45 per share, exercisable for five years after emergence, as well as direct distribution of 1.48 million shares of new common stock.

The existing shareholders were previously allowed to participate in the discount rights offering that is now being offered to general unsecured creditors. As an alternative, Delphi said stockholders can sell their existing shares before the plan is confirmed.

Delphi, a Troy, Mich.-based automotive electronics manufacturer, filed for bankruptcy on Oct. 8, 2005. Its Chapter 11 case number is 05-44481.

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