Published: September 27, 2008 02:33 am      

DELPHI: Judge OKs GM help for company

By VINNEE TONG

The Associated Press

NEW YORK — A bankruptcy judge on Thursday approved an agreement between General Motors Corp. and Delphi Corp. that spells out what GM will give and get as its former parts subsidiary exits bankruptcy.

Delphi’s next steps are to redraw its reorganization blueprint and secure loans to help it exit court protection.

“Today was a major milestone in these Chapter 11 cases,” Delphi lawyer Jack Butler said.

U.S. Bankruptcy Judge Robert Drain also approved an amendment to a GM loan that gives Delphi access to an additional $300 million in credit for a total of $950 million. He also said the company can pay bonuses to more than 400 executives for work during the first half of the year. The target payout under the compensation plan is $19.5 million and could rise to $36.1 million.

Ahead of the hearing, Delphi negotiated changes to appease creditors who had originally objected. The creditors committee agreed to a deal in which they would get some Delphi shares that would have gone to GM under a $2.06 billion priority claim. The creditors could get stock worth up to 20 percent of their claims. GM would still get the rest.

The terms of the deal change if Delphi does not successfully emerge from bankruptcy intact.

GM is Delphi’s former parent. Its role in the parts maker’s bankruptcy case grew by necessity when a group of equity investors pulled out of a deal to invest up to $2.55 billion in April.

Delphi and GM then renegotiated the level of GM’s financial support as the supplier worked to reformulate its reorganization plan.

Under the new agreement announced earlier this month that covers a wide range of issues, the automaker’s financial support of Delphi amounts to $10.6 billion, up from $6 billion in an earlier plan. That includes the assumption of $3.4 billion in pension obligations for hourly workers and $1.2 billion in cash through the end of 2008, as well as legacy labor costs and costs related to attrition and employee transitions.

GM also has a $2.5 billion unsecured claim against the Troy, Mich.-based parts maker.

Delphi’s creditors had objected to the GM deal, saying it would give the auto maker “extraordinary control” over Delphi’s reorganization, hurting creditors in the process.

On Tuesday, Drain approved a plan to freeze pensions for salaried and hourly workers and replace them with new ones. The changes to the hourly plans require union approval, which the company expects to get by next week. Delphi plans to transfer the $3.4 billion in pension obligations on Monday, ahead of a Tuesday deadline when maintenance of the plans becomes far more expensive.

“This transfer is exactly what we have been urging all along and we are very pleased with this result,” said Charles Millard, the director of the government’s pension insurer.

“The transfer will significantly reduce Delphi’s liabilities to its hourly pension plan, and will eliminate more than $1.2 billion in liens that we filed against Delphi’s non-debtor foreign affiliates,” Millard, of the Pension Benefit Guaranty Corp., said in a statement.

Other changes to the agreement were announced Thursday. Delphi would have six months to buy back up to 50 percent of its preferred stock at a discount of 15 percent of the value stated in the reorganization plan. Additionally, the preferred shares that GM would receive would be treated as common stock for the purposes of paying out dividends.

If Delphi does not reorganize — for example, if it liquidates or sells off a substantial portion of its assets — GM would still get its $2.06 billion priority claim but would split the first $600 million of its recovery with creditors. In that case, creditors would get $300 million, giving them roughly 10 cents on the dollar, at least.

Delphi has been operating under court protection since Oct. 8, 2005. It likely will try to submit modifications to its reorganization plan by Oct. 31, when it would need to get an extension on exclusive control of the case to stave off alternative proposals from creditors.