Four Firms Ask to Be at Top of Delphi’s Creditor List

From the Detroit Free Press

TROY, MI — Four companies that build production equipment for Delphi Corp. are asking a federal bankruptcy judge to move them to the top of the auto supplier’s list of creditors — a move that could help them collect more of the $2 million they are owed.

If the Delphi supplier angst snowballs it could severely cripple Delphi’s ability to provide parts and potentially shut down plants of its largest customer, General Motors Corp.

In a bankruptcy filing this week, L&W Engineering Co. of Belleville, MI, Dott Industries Inc. of Lapeer, MI, Omega Tool Corp. of Oldcastle, Ontario, Canada and Lakeside Plastics Ltd. of Salmon Arm, British Columbia, Canada, asked U.S. Bankruptcy Judge Robert Drain of the Southern District of New York to place them at the top of the list among creditors seeking payment from Delphi.

Typically in a bankruptcy, the debtor is required to pay creditors in the order of importance. Banks and other money lenders are paid first; shareholders are paid last, if at all.

These four companies are hinging their right to be paid first on a little-known caveat of Delphi’s financing regulations issued from the bankruptcy court, which says creditors with lien rights to the debtor’s possessions are paid first.

Under Michigan law, people who build production equipment or use production equipment to make parts have lien rights against the equipment, said Max Newman, a lawyer with Bloomfield Hills, MI,-based Schafer and Weiner PLLC, which represents the four companies.

Theoretically, these companies could exercise their lien rights and take back their equipment, Newman said.

“Nobody’s looking to do that because that would interrupt production,” Newman said. “The practical result is that there would be some payment arrangement, if we were found to be in first place” to receive payment from Delphi.

The claims of the four companies are estimated at $2 million. Lakeside Plastics has the largest claim of the four with more than $1 million.

“Because we have priority over the pre-petition secured creditors, we’re much more likely to get paid,” Newman said.

Rande Somma, a retired president of Johnson Controls Inc.’s Global Automotive Operations, said a disruption in the supply chain like the one these four companies could create would be just as damaging as a strike.

Delphi’s success in diversifying its customer base since its spin-off from GM in 1999 means that a greater portion of the auto industry could be affected if its business were interrupted. In general, foreign-based automakers are less susceptible to Delphi’s woes than domestic automakers.

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