Delphi gets approval of preliminary agreement with JPMorgan, Citigroup to arrange $6.8 billion loan

By Reshmi Basu

New York, Nov. 16 - Delphi Corp. obtained approval of a "best efforts" engagement letter with potential exit facility arrangers JPMorgan Securities Inc., JPMorgan Chase Bank, NA and Citigroup Global Markets Inc. at a hearing Friday in the U.S. Bankruptcy Court for the Southern District of New York.

Under the engagement letter, JPMorgan and Citigroup have agreed to attempt to assemble a syndicate for $6.8 billion in exit financing.

In approving the request, judge Robert D. Drain said: "It's in the best interest of the debtor to take the next step now."

However, on an unrelated matter, judge Drain conveyed his distress about the ongoing negotiations over Delphi's plan of reorganization, which may be a sign as to how heated the Nov. 29 hearing seeking approval of the company's disclosure statement will be.

Friday's proceeding was punctuated with a jolt of anger as judge Drain admonished the plan sponsors for renegotiating the investment plan in order to gain more leverage.

In the last few weeks, there have been three revised plans setting out the agreement between the company and six investment firms, led by Appaloosa Management, a New Jersey-based hedge fund.

Under the latest proposal, the investors will receive a discount as large as 37.8% to purchase $975 million of preferred and common shares.

But perhaps most troubling to the judge was the behavior of one of the plan's investors, Goldman Sachs, which returned to the deal after backing out earlier.

"As a sponsor of this company, they have to stand by this company," he told the court.

Moreover, the judge warned all the parties involved that they should negotiate on the value of the company instead of on the perceived leverage that can be demanded from the company's desire to exit bankruptcy.

Delphi has until Nov. 28 to submit any changes to the reorganization plan and its related disclosure statement.

Terms of potential $6.8 billion facility

As previously reported, the potential exit facility would consist of a $1.6 billion senior secured first-lien asset-based revolving credit facility; a $3.7 billion senior secured first-lien term facility; and a $1.5 billion senior secured second-lien term facility, of which up to $750 million would be in the form of a note issued to General Motors Corp. in connection with plan of reorganization distributions.

The company was originally seeking up to $7.5 billion in funded debt and a $1.6 billion asset-based revolver, but Delphi reduced proposed debt levels to facilitate an emergence financing package that could be executed under existing market conditions.

The company expects to exit bankruptcy by the first quarter of 2008.

Delphi, a Troy, Mich.-based automotive electronics manufacturer, filed for bankruptcy on Oct. 8, 2005. Its Chapter 11 case number is 05-44481.

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