From Detroit Free Press

DETROIT -- After 30 months of wrangling with the UAW, General Motors Corp. and a parade of private equity players, Delphi Corp. Chairman Steve Miller appeared close to wrapping up one of his most important turnarounds.

Lenders, vendors, GM representatives and more assembled Friday morning to complete the paperwork on a $6.1-billion loan that would lead the nation's largest auto parts maker out of bankruptcy and back on its own two feet.

But one of the company's owners, hedge fund Appaloosa Management LP, didn't show up and instead pulled out of its contract with the supplier, saying Delphi violated a deal that would have pumped another $2.5 billion into the company.

Now the Troy, Mich.-based global supplier and its thousands of U.S. workers face more questions than answers about what happens next.

Should Delphi sue Appaloosa, and hope courts will force the hedge fund to cooperate?

Should the company try to find new investors, or wait for the economy to improve before trying to win a loan?

Can the deal survive? Despite walking away, Appaloosa has left the door open for some kind of investment in the auto supplier.

Delphi's lengthy stay in bankruptcy stems from the same challenges that tight credit markets present to anyone trying to start a business or buy a home. Delphi's troubles also illustrate the weakness of the auto industry, which in the face of a potential recession confronts one of the worst years in a decade.

Stock buy, plus a loan

At the heart of Delphi's latest troubles is a deal in which six investors would have bought as much as $2.55 billion in stock in the company.

Together with a $6.1-billion loan, Delphi planned to exit bankruptcy in the coming days.

Appaloosa terminated the stock deal Friday morning, saying Delphi had violated the contract in several ways, including giving Delphi's former owner, GM, a larger stake in the company's exit loan.

Appaloosa President David Tepper declined to comment and deferred to a letter sent to Delphi on Friday.

Delphi contends that it fulfilled its side of the agreement. The company is "prepared to pursue actions that are in the best interests of Delphi and its stakeholders," the company's chief restructuring officer John Sheehan said in a statement.

Delphi wouldn't specify what that could be and reiterated that it plans to exit Chapter 11 "as soon as practicable."

Still, at the end of its three-page letter to Delphi, Appaloosa said it is still open to working with Delphi.

The firm "has been actively engaging in discussions to resolve our outstanding issues," including the possibility of a new transaction.

Hurdles everywhere

Delphi has come across several challenges.

"Sometimes factors converge to make something completely out of the common experience," said Barbara Rom, a bankruptcy lawyer at Pepper Hamilton. "And Delphi is it."

First Delphi won concessions from its union workers after drawn-out battles with UAW President Ron Gettelfinger.

An agreement with Appaloosa had seemed to fall through once before. One plan prior to the Appaloosa deal even had Chrysler LLC's majority owner Cerberus Capital Management as lead investor.

Most recently, Delphi had extended its bankruptcy stay past the end of 2007 because it had trouble finding a loan in credit markets tightened by the historic losses banks have taken on subprime loans.

But the company appeared to have gotten over that hurdle heading into Friday.

"Our formal closing process commenced today, and all of the other required parties for a successful closing and emergence from Chapter 11 ... were present and prepared to move forward this morning," Sheehan said.

But Appaloosa balked, saying Delphi violated terms not only regarding GM, but on issues of interest payments, the value for shareholders and management compensation.

Trying to repair the Appaloosa deal comes with risks.

"While negotiations to salvage the plan could bear fruit, they could also lead to a drawn-out and highly contested process to develop an alternative plan (or) find equity funding," Morgan Stanley auto analyst Jonathan Steinmetz said in a note to investors.

Delphi would be turning back to the same credit markets in which it had trouble finding the loan it was ready to complete Friday.

With GM backing, "Delphi has a better chance in the marketplace this time around, but it remains a difficult bet to make," said Kimberly Rodriguez, a director of global accounting, tax and business consulting firm Grant Thornton's automotive practice. "We can see from fluctuations in the stock market that confidence is on a roller coaster. Outcomes in the financial markets can be dependent on the tenor of the particular day."

On Friday, GM's stock dropped $1.01, or 4.7 percent, to $20.58.

Copyright (c) 2008, Detroit Free Press