Delphi Lenders Object to Obama-Brokered Sale

DETROIT (Reuters) – A group of lenders to bankrupt auto supplier Delphi Corp. on Wednesday filed an objection to a sale brokered by the Obama administration, saying it had been “secretly negotiated” and that the company had stymied consideration of alternatives.

The bankruptcy court filing marked an escalation in a showdown between investors that have provided Delphi with $3.25 billion in debtor-in-possession financing and the supplier’s embattled former parent General Motors Corp (GMGMQ.PK) and U.S. officials overseeing the automaker’s turnaround efforts.

Delphi, which was spun off from GM in 1999, filed for bankruptcy in 2005 in a reorganization that has been an ongoing cash drain for the automaker since.

GM, which filed for bankruptcy earlier this month, plans to sell its best assets to a reorganized company that will be 60 percent owned by the U.S. government.

As part of that plan, GM plans to take back a number of Delphi operations that it needs to supply its U.S. assembly plants, including Delphi’s steering parts business.

GM has also agreed to provide $2 billion in cash and credit to help fund a $3.6 billion investment in other Delphi assets that would be sold to Platinum Equity, a private equity firm.

But the group of institutions that has provided Delphi with its bankruptcy financing has objected to that plan.

On June 10, Judge Robert Drain said Delphi should provide information to other potential bidders, subject to confidentiality agreements.

In a filing on Tuesday, a group of hedge funds, including Silver Point Capital and Grey Wolf Capital, said Delphi had blocked their access to financial information and ignored Drain’s earlier order.

“That message — which was loud and clear to the DIP lenders — unfortunately has not been heard by the debtors, who have resisted every effort by the DIP lenders to obtain access to data and information,” the filing said.

In addition, the Delphi lenders said that the Platinum deal, which was brokered by the White House-appointed autos task force, represented a “give-away of significant value” that would short-change them.

“The proposed transaction was secretly negotiated with GM, Platinum and the U.S. Treasury’s autos task force, while a court-ordered mediation was in progress, without anything remotely resembling a proper M&A process,” the lenders said.

Delphi remains one of GM’s key suppliers and GM has taken more than $11 billion of charges to help the company’s reorganization and keep it in operation.

The U.S. government has provided $60 billion in financing for GM and is aiming to effectively nationalize a reorganized automaker with sharply lower debt that could be eventually sold back to investors.

A hearing on the proposed Delphi sale is scheduled for July 23.

The case is In re: Delphi Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 05-44481.

By Kevin Krolicki
(Editing by Gerald E. McCormick)