NEW YORK (Reuters) – A U.S. bankruptcy judge told auto parts maker Delphi Corp (DPHIQ.PK) on Wednesday to open the sale of its assets to other potential bidders who could compete with an offer from private equity firm Platinum Equity.
Judge Robert Drain said Delphi should provide information to other potential bidders, subject to confidentiality agreements, and suggested the company set up a sales process for an auction of its assets in July.
Delphi, which was spun off from General Motors Corp (GMGMQ.PK) in 1999 and filed for bankruptcy in 2005, said last week it reached a deal to sell most of its global operations to private equity firm Platinum Equity, allowing the car parts supplier to emerge from its nearly four-year bankruptcy.
However, several lenders that provided bankruptcy funding to Delphi said in U.S. bankruptcy court in Manhattan on Wednesday that they were seeking to make their own competing offer for Delphi’s assets.
The lenders, which provided senior debtor-in-possession financing to Delphi, said they would like access to information about agreements between Platinum and GM so they could decide whether to submit their own “credit bid” for Delphi.
In bankruptcy, secured lenders can make a “credit bid” for a company up to the full amount of their claim and cancel the debt, as opposed to making a straight cash offer.
“We are prepared to exercise our credit bid right,” Glenn Siegel, a lawyer representing Delphi lenders Kensington International Ltd, Manchester Securities Corp, and Springfield Associates, told the court.
However, John Butler, a lawyer for Delphi, rejected the lenders’ claims that Delphi had not been transparent about the sale, saying the lenders could have made this offer at any earlier date and specifically told Delphi it should plan to go forward without any additional capital from them.
“Despite all of the access the DIP lenders have had to information in the last six months … the only feasible, fully funded transaction we have to move forward with is the one before us,” Butler told the court, noting that the company had been working for 14 months to come up with such a transaction to resolve its bankruptcy process.
But Judge Drain said he was concerned about provisions in Delphi’s deal with Platinum that could prevent Delphi from working with other parties that want to make competing offers.
“Why are we not permitting a process that’s one where there can be a higher bidder?” Drain asked Butler, saying litigation could arise from preventing other bidders’ offers and he was not sure why Platinum should get these special protections.
“As far as I’m concerned, they (Platinum) are just guys in suits. Why can’t other guys in suits pay more?” Drain said.
A potential new bidder would have to secure some agreements from Delphi’s union, and from General Motors, which is providing more than $4 billion to support the new Delphi under the Platinum deal, lawyers said in court.
Platinum said in a statement on Wednesday that it aims to use its operational and turnaround expertise to help Delphi turn around its business.
“We have good working relationships with Delphi’s senior management and its global OEM customer base,” Platinum CEO and Chairman Tom Gores said in the statement. “We are ready to help and will see to it that we are a positive contributor to the industry’s transformation.”
The lenders seeking to make the competing bids said they were specifically seeking information about what equity stake GM would have in the new Delphi under the Platinum deal.
Judge Drain said he thought a more open sale process would make all parties more comfortable with the outcome. “People, in my experience, have come out of the woodwork,” Drain said.
The judge also gave Delphi preliminary approval to access $250 million in funding from GM that is expected to support Delphi until it can emerge from bankruptcy.
Delphi remains one of GM’s key suppliers and GM has taken more than $11 billion of charges to help the company’s reorganization along. GM, which also has filed for bankruptcy, received court approval at a hearing last week to continue providing support to its suppliers.
The case is In re: Delphi Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 05-44481.
(Reporting by Emily Chasan, editing by Matthew Lewis; Gerald E. McCormick and Carol Bishopric)