Delphi to get up to $3.4 billion investment

CHICAGO December 18, 2006; David Bailey writing for Reuters reported that Delphi Corp. laid out a road map for reorganization on Monday that includes an investment of up to $3.4 billion from a private equity group, potential creditor recoveries and an executive succession plan.

Appaloosa Management LP and Cerberus Capital Management LP are leading the group that will invest up to $3.4 billion in the auto parts maker under plans announced on Monday, giving the investors a large stake when Delphi emerges from bankruptcy.

Delphi also said Chairman and Chief Executive Steve Miller will step down as CEO on January 1 and be succeeded by President and Chief Operating Officer Rodney O'Neal. O'Neal will serve as president and CEO when Delphi emerges from bankruptcy.

The deal requires bankruptcy court approval and is contingent on Delphi reaching agreements with former parent General Motors Corp. and automotive labor unions.

Delphi, which filed for bankruptcy in the United States in October 2005, has outlined plans to cut thousands of hourly and salaried workers, close or sell 21 of 29 U.S. union plants and drop several business lines to reorganize.

In court documents filed on Monday, the company said it has much to complete, but called the investment and the framework, "a major milestone in Delphi's reorganization."

The investor group also includes Harbinger Capital Partners Master Fund I Ltd., Merrill Lynch & Co. and UBS Securities LLC. The group, or Delphi, can terminate the agreement if Delphi does not reach deals with GM and the unions by January 31.

The group would own 25 percent to 30 percent of the reorganized company at its minimum investment of $1.4 billion and more than two-thirds at the full $3.4 billion commitment, a source familiar with the transaction said.

Troy, Michigan-based Delphi said the investors and GM have signed off on the proposal and it will seek bankruptcy court approval on January 5. A formal reorganization plan would come later.

Miller, who joined Delphi in mid-2005 to guide the restructuring, will remain executive chairman through the company's emergence from bankruptcy, which Delphi has said it expects in the first half of 2007.

"It's kind of a breakthrough in the process and, although it needs some approvals yet, it certainly seems very detailed in its approach," said Pete Hastings, corporate bond analyst at Morgan Keegan.

STOCKHOLDER RECOVERY, PENSIONS FUNDED

Hastings said he expected the deal to be perceived as positive for GM, as it appears to further reduce the risk of a costly work stoppage at Delphi, which GM spun off in 1999.

And Miller's planned exit as CEO may ease tensions with United Auto Workers leaders, who had accused Miller of using stonewalling tactics and abusing the bankruptcy process.

UAW had no comment to the media but told members on its Web site that the proposal properly recognizes that union agreements will be required for Delphi's reorganization.

Delphi's second-largest union, the International Union of Electrical Workers-Communications Workers of America, said some progress had been made in contract talks, but large hurdles remained and it was willing to meet for as long as needed.

Delphi has been in talks for months with GM, creditors, potential investors and unions over its future.

Current stockholders would receive a recovery in the proposed reorganization plan and funding gaps in the company's U.S. pensions would be resolved as well to preserve the accrued pensions of U.S. salaried and hourly workers, Delphi said.

Senior secured debt would be refinanced and paid in full and all allowed administrative and priority claims would be paid in full, Delphi said.

Allowed trade and other unsecured claims, as well as unsecured funded debt claims and subordinated debt claims would receive cash or common stock in the reorganized Delphi.

Current stockholders would receive $135 million of stock in the reorganized Delphi, or 3 million shares, and rights to buy 57 million more shares at $35 per share. The investor group has agreed to buy any shares not purchased under the rights program.

Delphi has roughly 560 million shares of common stock outstanding, which would give current stockholders roughly one right for every 10 shares they hold.

GM would receive 7 million shares of common stock in the reorganized Delphi, $2.63 billion in cash, and an unconditional release of alleged Delphi claims against GM.

GM said Monday that it still expected its total exposure to Delphi's bankruptcy to be $6 billion to $7.5 billion.

J.P. Morgan analyst Himanshu Patel said the Delphi deal could boost GM's liquidity by almost $4 billion since the automaker will receive cash from Delphi and book longer-term pension liabilities under the agreement.

He maintained a "neutral" rating on GM stock, saying in a note for clients that the shares appeared "fairly valued" at almost 7 times his forecast of 2007 earnings for GM, assuming next year represents a peak in its profit cycle.

(Additional reporting for Reuters by Kevin Krolicki in Detroit)