From AFX News Limited
DETROIT — Delphi Corp. Executive Chairman Steve Miller says the auto parts maker’s turnaround plan is generating $20 billion to $30 billion per year in new business that will be an engine of growth for the company when it exits bankruptcy protection.
Leaving Chapter 11 will take more time, however. In the face of declining U.S. auto sales, tight capital markets have made investors wary about the Troy, Mich.-based company, making it difficult to pull together the financing it needs.
On April 4, just as Delphi had arranged $6.1 billion in loans and additional funding from General Motors Corp. to get out of bankruptcy, an investment group led by the private equity firm Appaloosa Management LP pulled out of a deal to provide a $2.55 billion cash injection. Appaloosa accused Delphi of breaching an agreement with the investor group.
The move blew up Delphi’s exit financing, Miller told the Automotive Press Association in Detroit on Tuesday.
"Sooner or later the capital markets will get online with what we need to do to exit from bankruptcy, and we will get it done," he said during an appearance promoting a book about turning around Delphi and other companies. "It won’t get done in weeks, but it’s going to be months."
Delphi, GM’s former parts arm that was spun off as a separate company in 1999, has been under bankruptcy protection since October 2005. In the past three years, it has lost nearly $10.9 billion as it downsized its U.S. footprint and became more of a global company.
Bankruptcy experts say Delphi’s 2 1/2-year stay in Chapter 11 isn’t unusual, although at some point liquidation could be possible if losses continue.
Much of the losses, Miller said, were one-time expenses from closing plants and exiting unprofitable business lines.
When Appaloosa backed out of the financing deal, it heightened worries for Delphi workers who thought Delphi would emerge from bankruptcy soon after unions granted lower wages and other concessions last year, said Michael O’Donnell, shop chairman for IUE-CWA Local 717. The local represents about 950 workers at three factories in and around Warren, Ohio.
At the Warren facilities, which make wiring cables, metal connectors and plastic molded parts mainly for GM vehicles, some workers are on temporary layoff. With GM sales down 10.9 percent so far this year and forecasts for sales to worsen, there’s little hope for them to be called back anytime soon.
"The membership is apprehensive," O’Donnell said.
Delphi, once among the world’s largest auto parts suppliers, had about 30,000 hourly workers at 31 U.S. factories shortly after it filed for bankruptcy. Now it’s down to 14,800, including 2,400 waiting to retire, and it eventually will have only eight U.S. plants.
Miller, though, said Tuesday that liquidation of North American operations wouldn’t be possible. Delphi looked at separating its U.S. operations in 2005 and found problems with labor contracts and in determining which company would get intellectual property.
Industry analysts say Delphi has made money on international operations and has successfully shed employees and U.S. operations that don’t fit its core businesses. Those are electronics, safety systems, electrical distribution, heating and air conditioning systems and some mechanical parts.
David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., sees the company emerging from bankruptcy, with investors attracted to exclusive technology at a relatively low price. Delphi technology includes radar-based safety systems such as lane departure and warning, electronic brake controls and high-tech heating and cooling compressors.
Delphi can’t stay in bankruptcy forever, but lawyers say it can be there a lot longer than the current 2 1/2 years.
Shortly after Delphi filed, the bankruptcy law was changed so most companies have to come out of Chapter 11 in 18 months. But much longer stays were common under the old law, said Walter Curchack, a bankruptcy attorney with the Loeb & Loeb law firm.
Delphi may be able to replace the missing Appaloosa money relatively soon, said Brett Barragate, a partner specializing in commercial financing at the Jones Day law firm.
"If things drag on and more pieces of the plan fall apart, then there is some concern because they may have to back and revisit the whole thing," Barragate said.
With slowing sales at GM, which accounts for 37 percent of Delphi’s business, investors could balk at Delphi. At some point, creditors could motion to sell the company’s assets, Curchack said.
"The question is what would be realized in a liquidation?" he said. "That has to be compared against what can be realized in a reorganization."
A judge would be reluctant to liquidate the company as long as bankruptcy provides a reasonable chance to bring returns to creditors, Curchack said.
"The judge will rarely pull the plug on his own," he said. "It’s usually a question of someone else coming forward and saying `put it out of its misery.’"
