Delphi amends accommodation agreement; GM agrees to accelerate more advances

By Caroline Salls

Pittsburgh, Feb. 4 - Delphi Corp. has reached agreement with the required lenders to amend the accommodation agreement with lenders under its debtor-in-possession first-priority revolving credit facility in support of Delphi's efforts to develop a modified reorganization plan adapted to the current global economic environment, according to an 8-K filed Wednesday with the Securities and Exchange Commission.

Specifically, the lenders have agreed to modify some financial covenants and pay down requirements contained in the accommodation agreement, and General Motors Corp. has agreed to immediately accelerate $50 million in advances under a partial temporary accelerated payments agreement.

GM has also agreed to either accelerate an additional $50 million in advances by Feb. 27 or to increase to $350 million from $300 million the amount it is committed to advance under a GM advance agreement.

If GM chooses the first option, Delphi's minimum liquidity covenant will be reduced to $50 million and the target cash balance in the GM advance agreement will be increased to $50 million.

In either scenario, Delphi said it believes it would have enough additional liquidity to remain in compliance with applicable covenants through late April.

Although the amendment and GM's agreement are effective immediately, Delphi said the amendment is subject to post-closing conditions, including the payment of fees to the consenting lenders.

The company said it will ask the court to rule on payment of the fees on Feb. 24.

If it is able to meet specified milestones in its reorganization proceedings and obtain continued support from GM, Delphi said it projects that it will have access to additional liquidity to support its working capital requirements through the remainder of the term of the accommodation period in the accommodation agreement.

In addition, the company said it believes the amendment and accelerated GM support will enable it to preserve available liquidity given the difficult economic environment, particularly in the global automotive industry.

As previously reported, while in bankruptcy, Delphi has been supplementing cash from operations in North America with borrowings under its DIP facility, which expired on Dec. 31.

Before the DIP facility expired, Delphi entered into the accommodation agreement, allowing it to retain the proceeds of drawn amounts under the facility, consisting of a $1.1 billion first-priority revolving credit facility, a $500 million first-priority term loan and a $2.75 billion second-priority term loan until the earlier of June 30, 2009, or May 5 if specified milestones are not met.

Despite the accommodation agreement, Delphi said it is in default on the amended and restated DIP facility, and as a result, was no longer able to make additional draws under the facility after Dec. 12.

EBITDAR requirement

According to the 8-K, the accommodation agreement requires Delphi to maintain a rolling 12-month cumulative global EBITDAR level to periodically pay down amounts outstanding under the revolver in excess of a specified amount determined, in part, by the amount of outstanding receivables, inventory and the value of fixed assets, and to maintain a minimum liquidity level of $100 million.

Delphi said it also has the ability to draw down amounts under an agreement with GM whereby GM agreed to advance payments to be made by GM to Delphi following the effectiveness of the GM settlement and restructuring agreements.

This agreement was later extended and amended to provide up to $300 million in advances through June 30, 2009.

Delphi said the GM advance agreement currently has a targeted cash balance of $25 million dollars, and the company is required to use any free cash flow above the targeted cash balance amount to repay any amounts outstanding.

In addition, GM has agreed to accelerate payment of some payables to Delphi under the partial temporary accelerated payments agreement, which could result in an additional $300 million of liquidity to Delphi to be provided through May.

Delphi said the amendment was necessitated by significant production volume decreases and significantly lower forecasted volumes through the first quarter of 2009.

In this low production environment, the company said the amount of outstanding accounts receivable and inventory has been declining, thus requiring periodic repayments of amounts outstanding under tranches A and B of the amended DIP facility to maintain compliance with the paydown covenants.

As of Jan. 31, reduced volume projections were expected to result in a significant decline in rolling 12-month cumulative global EBITDAR at the end of January, which, without the amendment, might have put Delphi's ability to comply with the global EBITDAR covenants at risk.

In addition, the company said this deterioration has reduced the amount of outstanding receivables, potentially requiring Delphi to repay significant additional amounts currently outstanding under the revolver in the months of January and February, further reducing liquidity in its North American operations.

However, the lenders have agreed to modify some accommodation agreement covenants under the amendment.

Specifically, the amendment calls for revised rolling 12-month cumulative global EBITDAR levels of $ 185 million at Jan. 31; negative $50 million at Feb. 28; negative $150 million at March 31; negative $250 million at April 30; and negative $350 million at May 31.

The amendment also calls for an additional cash collateral basket of up to $117 million, which, solely for purposes of the prepayment provisions in the accommodations agreement, is considered an offset to amounts outstanding under the revolver.

Agreement deadlines

To provide additional liquidity support from April through the remainder of the accommodation period, Delphi said the amendment provides that the amounts in the basket can be released to Delphi if it files an acceptable plan of reorganization or plan changes by Feb. 27 and GM has obtained required approvals to increase the amounts available under the GM advance agreement to $450 million by March 24.

Delphi will be required to apply all amounts in the basket to pay down the amended DIP facility if it has not delivered a proposal to GM regarding Delphi's North American sites and the related GM plan to support Delphi's overall emergence plan by Feb. 17; if Delphi has not delivered a business plan incorporating the proposal by Feb. 20; if Delphi fails to file a plan of reorganization or modifications to its existing plan of reorganization by Feb. 27; or if on March 24, there is less than $450 million of total availability committed under the GM advance agreement.

Delphi said it believes that the combination of its cost saving initiatives, the additional liquidity support from GM and the accommodation and DIP facility amendments will provide the necessary U.S. liquidity to try to emerge from bankruptcy.

Delphi, a Troy, Mich.-based automotive electronics manufacturer, filed for bankruptcy on Oct. 8, 2005 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 05-44481.

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