Delphi creditors committee slams company for 'knuckling under' to plan investor demands

By Caroline Salls

Pittsburgh, Nov. 21 - Delphi Corp.'s official committee of unsecured creditors objected to the disclosure statement for the company's plan of reorganization and the Appaloosa Management LP equity purchase commitment, arguing that the treatment of unsecured creditors has gotten progressively worse with each new version of the plan of reorganization.

According to the objections filed Wednesday with the U.S. Bankruptcy Court for the Southern District of New York, the treatment of general unsecured creditors has gotten progressively worse each time the plan and disclosure statement have been changed, while the economics for the plan investors have gotten progressively better.

Specifically, the committee said each of the four times the company has changed the construction of the plan, the enterprise value at which the plan investors have agreed to purchase their equity has dropped, allowing them to purchase more and more equity of the reorganized company for each dollar paid.

The committee said each drop in the "buy-in" price for the plan investors has represented a transfer of value to the investors away from other constituencies, "almost exclusively the general unsecured creditors."

"Until recently the committee has been willing to accept that trade off; however, with the current plan, the debtors have gone one step too far," the committee said in the disclosure statement objection.

The committee said the most recent plan negotiations, "during which the company sought to appease every constituency except the committee, have resulted in an overhaul of the plan that is wholly unacceptable to the committee."

Because little has happened recently that would cause the company's enterprise value to go down, the committee said the reduction in the buy-in price from one contained in an earlier equity purchase commitment amendment represents a transfer of value to the plan investors.

"If enterprise value is static, the additional value transferred to the plan investors must be taken from another constituency - in this case, the unsecured creditors," the committee said in the objection.

The committee said it objects to the allocation of an "unreasonably large amount of value" away from general unsecured creditors, and it will no longer accept the company's insistence that additional value be transferred from unsecured creditors to the plan investors as the price of the investors' participation.

As a result, the committee said it believes that holders of general unsecured claims will vote overwhelmingly to reject the plan, rendering the new plan proposal "simply unconfirmable."

Equity commitment objection

According to the equity commitment objection, the plan investors have insisted on receiving opportunities for increased short-term gain as the price for their remaining in the transaction, and the committee said Delphi has given in to those demands, regardless of the consequences.

The committee said providing more and more favorable economic terms to the plan investors at the expense of unsecured creditors and "knuckling under repeatedly to the demands of the plan investors" is a breach of the company's fiduciary duties.

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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