Delphi Can Begin Bankruptcy Vote Process

Delphi Corp. can begin soliciting votes for its plan to exit bankruptcy, the company's lawyer said on Friday, a major step toward letting the auto parts maker proceed with a restructuring that would shed thousands of jobs in plants across the country. Delphi attorney Jack Butler said bankruptcy judge Robert Drain verbally approved the order on Friday and that if all changes the judge requested meet his requirements, he would enter an order today. Delphi's reorganization plan includes shrinking its unionized work force to a fraction of its former size and shifting manufacturing overseas.

From Associated Press

NEW YORK — Delphi Corp. can begin soliciting votes for its plan to exit bankruptcy, the company’s lawyer said on Friday, a major step toward letting the auto parts maker proceed with a restructuring that would shed thousands of jobs in plants across the country.

Delphi attorney Jack Butler said bankruptcy judge Robert Drain verbally approved the order on Friday and that if all changes the judge requested meet his requirements, he would enter an order today.

Delphi’s reorganization plan includes shrinking its unionized work force to a fraction of its former size and shifting manufacturing overseas.

Its proposal would ultimately eliminate 27,000 of 33,000 union jobs and would sell or close 20 factories across the nation and one in Mexico. Remaining and future workers are left with a two-tier wage structure, with new United Auto Workers members earning wages of $14 to $18.50 an hour, down from $27 per hour.

The company expects to begin sending voting material to about 500,000 creditors Dec. 15 and has scheduled a hearing to begin Jan. 17 to confirm its plan. Unsecured creditors — who would receive 100 percent on their claims as stock and rights to purchase discounted shares — have until Jan. 11 to decide.

Once it emerges from court protection, the company ultimately plans to employ 6,000 hourly workers at eight U.S. plants, with another two factories running temporarily. It has pinned its future growth on higher revenue from operations in Europe, Asia and South America.

Delphi’s cost cutting while in bankruptcy has attracted some of the biggest names in private equity and hedge funds, some of which may become major investors as the company emerges from court protection.

Drain also approved changes to an agreement for hedge fund Appaloosa Management LP and five other investors to inject up to $2.55 billion into Delphi in exchange for shares in the new company.

The company’s investment bankers estimate Delphi’s enterprise value in a range between $11.2 billion and $14.1 billion, with stakeholders in the case agreeing to use a value of $13.3 billion for the purposes of the plan.

The investor group led by Appaloosa also includes Harbinger Capital Partners Master Fund I Ltd.; Merrill Lynch, Pierce, Fenner & Smith Inc.; UBS Securities LLC; Pardus Capital Management LP, and Goldman Sachs Group Inc.

Early this year, private equity giant Cerberus Capital Management LP had been part of the equity group but opted to drop out of the deal. Hedge fund Highland Capital Management LP, meanwhile, had pressed to be included in December 2006 and again in July, but both times was rejected in favor of the Appaloosa group.

To help it exit bankruptcy, Delphi also plans to take $6.8 billion in loans, including $5.2 billion to replace its current debtor-in-possession loans. It is still securing agreements for the financing. The hearing that resumed Thursday and continued on Friday had been delayed as the company dealt with the objections and as it seeks exit financing, since credit has become less available amid the subprime mortgage crisis.

Delphi entered bankruptcy under duress from its close ties to the ailing auto industry and because of labor costs that had become burdensome. Its condition worsened after it was spun off from parent company General Motors Corp. in 1999. GM remains its biggest customer, and the automaker was a key stakeholder in negotiations throughout Delphi’s case.

Delphi has diversified its customer base in recent years, and last year reported sales of more than $750 million from several major automakers, such as Ford Motor Co., Chrysler LLC, Volkswagen Group, Hyundai and Renault/Nissan Motor Co. Delphi chief restructuring officer John Sheehan said Thursday that the company has been signing up $2 billion in new business each month.

The eight plans that will remain in operation are in: Brookhaven, MS; Clinton, MS; Grand Rapids, MI; Kokomo, IN; Lockport, NY; Rochester, NY; Vandalia, Ohio; and Warren, Ohio. Two others will be kept running temporarily; they are in Flint, MI, and on Needmore Road in Dayton, Ohio. Twenty other U.S. factories and one in Mexico have either been sold, will be sold or have shut down.

Delphi entered bankruptcy protection in October 2005.