Delphi senior noteholders object to GM funding arrangement, ask court to appoint examiner

By Caroline Salls

Pittsburgh, Aug. 20 - Delphi Corp. senior noteholders CR Intrinsic Investors, LLC and Highland Capital Management, LP objected to the company's amended funding arrangement with General Motors Corp. and asked the court to appoint an examiner to make sure that the interests of the company's various estates are protected.

According to the objection filed Wednesday with the U.S. Bankruptcy Court for the Southern District of New York, Delphi is trying to incur an administrative priority debt to GM to cover losses generated during the period after the company's plan of reorganization failed to take effect.

"The real beneficiary of the GM arrangement, of course, is GM," the noteholders said in the objection.

The noteholders said Delphi is attempting to place the burden of these losses on all of its debtors, even though the "losses are clearly attributable to the North American operations."

CR Intrinsic and Highland Capital said Delphi is harming its creditors, "whose profitable, non-debtor foreign subsidiaries are already subsidizing the money-losing North American operations."

By granting GM an administrative priority claim that could be filed against all of its debtors, the noteholders said Delphi is trying to allow the equity value of its foreign subsidiaries "to be stripped for the benefit of its failing North American subsidiary operations, which may have no equity value at all."

The noteholders said Delphi should be exploring other alternatives to restructure its North American operations, including union negotiations, exiting unprofitable businesses and rejecting unprofitable contracts and negotiating agreements with its customers, including GM, to increase its pricing to rational levels that would allow the North American operations to operate on an economic basis.

In addition, the noteholders said the proposed shifting of assets and debts constitutes a substantive consolidation of the company's estates outside of a plan of reorganization.

CR Intrinsic and Highland said an examiner should be appointed to investigate how the GM arrangement will impact the different debtors and whether it will benefit some of Delphi's debtor estates to the detriment of others.

As previously reported, GM has agreed to increase its advances to Delphi by up to $300 million.

In May, GM agreed to advance up to $650 million to Delphi to support the company's objective to maintain a minimum of $500 million of liquidity in available funds through the second half of 2008.

Delphi said in the motion that it has now determined that it needs to further enhance its liquidity through the rest of the year.

As a result, GM has agreed to increase its advance commitment to $950 million from $650 million, which Delphi said will allow it to maintain a minimum of $300 million of liquidity in available funds.

Under the amended GM arrangement, interest on advances above the original $650 million facility amount will be cancelled if a GM-approved plan of reorganization takes effect before the termination of Delphi's tranche B DIP loan.

In addition, GM can terminate the arrangement amendment if Delphi has not filed amendments to its plan of reorganization and disclosure statement by Oct. 31.

A hearing is scheduled for Aug. 26.

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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