Delphi accepts $3.4 billion equity commitment, $4.5 billion replacement DIP proposals

By Caroline Salls

Pittsburgh, Dec. 18 - Delphi Corp. has accepted a proposal for an equity purchase and commitment agreement under which the proposed investors would contribute up to $3.4 billion in preferred and common equity in the reorganized company to support Delphi's transformation plan and its plan of reorganization framework agreement, according to a company news release.

Delphi said it also accepted a proposal from JPMorgan Chase Bank, NA and a group of lenders for a $4.5 billion facility to refinance in full its existing $2 billion debtor-in-possession facility and $2.5 billion in pre-bankruptcy revolving credit and term loan facilities.

In recognition of the favorable environment in the capital markets and to minimize transaction fees, the company said it accepted the DIP refinancing lenders' undertaking on a best efforts basis without underwriting by the lenders.

Under the terms of the replacement DIP facility, Delphi said it estimates that it will save about $8 million per month in financing costs.

According to court documents, interest on the replacement DIP facility will be Libor plus 325 basis points, 25 bps lower than the current DIP facility, and maturity will be Dec. 31, 2007, about 2½ months longer than the current maturity.

The plan investors include affiliates of Appaloosa Management LP, Cerberus Capital Management, LP and Harbinger Capital Partners Master Fund I, Ltd., as well as Merrill Lynch & Co. and UBS Securities LLC.

The plan framework support agreement parties include Delphi, the plan investors and General Motors Corp.

"Delphi has long emphasized its commitment to pursuing a resolution of the principal issues in our restructuring," chairman and chief executive officer Robert S. "Steve" Miller said in the release.

"The agreements announced today demonstrate real progress toward that objective.

"Our new $4.5 billion DIP financing provides an appropriate foundation from which to negotiate and secure emergence financing.

"While there is much that remains to be accomplished in our reorganization, Delphi and its stakeholders are together navigating a course that should lead to consensual resolution with our U.S. labor unions and GM while providing an acceptable financial recovery framework for stakeholders."

Equity commitment terms

Under the equity purchase and commitment agreement, the plan investors will commit to purchase $1.2 billion of convertible preferred stock and about $200 million of common stock in the reorganized company.

Additionally, the plan investors will commit to purchase any unsubscribed shares of common stock in connection with a $2 billion rights offering that will be made available to existing common stockholders.

The rights would permit holders to purchase their share of new common stock at a discount to anticipated reorganization business enterprise value.

If no other shareholders exercise their rights, the plan investors will purchase all of the unsubscribed shares, up to $2 billion.

The investment agreement is subject to the completion of due diligence and satisfaction or waiver of numerous other conditions, including Delphi's achievement of consensual agreements with its U.S. labor unions and GM.

The plan framework support agreement is also expressly subject to reaching consensual agreements with Delphi's U.S. labor unions and GM, the release said.

Both Delphi and the plan investors can terminate the equity purchase agreement if agreements are not reached with labor and GM by Jan. 31.

While there have been continuing discussions with the company's U.S. labor unions and GM, Delphi said there are significant differences of views that need to be reconciled to achieve consensual agreements by the Jan. 31 deadline.

Plan framework

Under the plan framework agreement:

• All senior secured debt would be refinanced and paid in full and all administrative and priority claims would be paid in full;

• Trade and other unsecured claims and unsecured funded debt claims would be satisfied in full with $810 million of common stock (18 million out of a total of 135.3 million shares) in the reorganized Delphi, at a value of $45 per share, and the balance in cash.

The framework requires that the amount of allowed trade and unsecured claims, other than funded debt claims, not exceed $1.7 billion;

• In exchange for GM's financial contribution to Delphi's transformation plan, and in satisfaction of GM's claims, GM will receive 7 million out of a total of 135.3 million shares of common stock in the reorganized Delphi, $2.63 billion in cash and an unconditional release of any alleged estate claims against GM.

In addition, as with other customers, some GM claims would flow through the Chapter 11 cases and be satisfied by the reorganized company in the ordinary course of business;

• All subordinated debt claims would be satisfied with $450 million of common stock (10 million out of a total of 135.3 million shares) in the reorganized Delphi, at a value of $45 per share, and the balance in cash; and

• Holders of existing equity securities in Delphi would receive $135 million of common stock (3 million out of a total of 135.3 million shares) in the reorganized Delphi, at a value of $45 per share, and rights to purchase roughly 57 million shares of common stock in the reorganized Delphi for $2.0 billion at an exercise price of $35 per share.

According to the release, the plan framework anticipates that GM's financial contribution to the transformation plan would include triggering of the GM benefit guarantees, assumption by GM of some post-retirement health and life insurance obligations for Delphi hourly employees, provision of flow-back opportunities at some GM facilities for Delphi employees, GM's payment of retirement incentives and buyout costs under current or future attrition programs for Delphi employees, GM's payment of mutually negotiated buy-downs, GM's payment of labor costs for Delphi employees, a revenue plan governing other aspects of the commercial relationship between Delphi and GM, GM's support of the wind-down of some Delphi facilities and the sales of some Delphi business lines and sites.

New board

Also under the proposed plan, the reorganized company will be governed by a 12-member board of directors, 10 of whom would be independent directors and two of whom would be a new executive chairman and chief executive officer and president.

Current Delphi president and chief operating officer Rodney O'Neal will be appointed CEO and president of the reorganized company by the effective date of the plan of reorganization.

Separately, Delphi's board has decided to make O'Neal's CEO appointment effective Jan. 1 to allow for the best transition between Miller and O'Neal before the company emerges from bankruptcy.

Together with O'Neal's appointment, Miller will become Delphi's first executive chair and will continue to oversee the company's Chapter 11 reorganization through emergence.

A five-member selection committee, consisting of John D. Opie, Delphi board of directors' lead independent director, a representative of each of Delphi's two statutory committees and a representative of each of Delphi's two lead plan investors, Cerberus and Appaloosa, will select the company's post-emergence executive chair, as well as four independent directors, one of whom may be from Delphi's current board.

Pension plans

The plan framework support agreement reaffirms Delphi's commitment to preserve its salaried and hourly defined benefit U.S. pension plans and will include an arrangement to fund $3.5 billion of its pension obligations, with as much as $2 billion able to be satisfied through GM taking an assignment of Delphi's net pension obligations.

GM will receive a note in the amount of the assignment that will be paid in full within 10 days following the effective date of the plan effective date.

To retain the programs and related benefits accrued, Delphi said it will freeze the U.S. pension plans no later than at the time of emergence.

According to an 8-K filing with the Securities and Exchange Commission, Delphi will pay a $21 million commitment fee to the investors in proportion to their preferred share undertakings; a $55.13 million commitment fee to the investors to compensate their undertakings for other investor shares; and expense reimbursement.

Hearings on approval of the equity commitment agreement and the replacement DIP facility will be held Jan. 5.

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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