Delphi's hearing on approval of amended Appaloosa investment plan to resume Friday

By Reshmi Basu

New York, Dec. 6 - A federal judge declined Thursday to rule on Delphi Corp's motion for approval of amendments to an investment plan, which calls for the infusion of $2.55 billion by a consortium of investors led by Appaloosa Management.

The hearing will resume Friday.

The crux of the dispute is whether or not the provisions under the equity purchase and commitment agreement (EPCA) are so binding that Delphi is unable to entertain other alternative offers while Appaloosa has free rein to renegotiate the terms and could even walk away from the deal at any point.

In a hearing that fell just shy of 10 hours, the attorney for Wilmington Trust Co., the indenture trustee for holders of $2 billion in senior debt, argued that Appaloosa had designed an investment plan which discouraged Delphi and the other plan investors from seeking alternatives bids by placing them in lockdown.

Furthermore, Wilmington Trust alleged that once the court approved the original EPCA in August, the plan investors immediately renegotiated terms of the deal that resulted in substantial discounts to their purchase price for the company's common and preferred shares.

Under Delphi's proposed reorganization plan, the investors can buy series A convertible preferred stock at a 29.2% discount and shares of series B convertible preferred shares at a 28.6% discount.

In court Thursday, Wilmington Trust attorney Edward M. Fox of Kirkpatrick & Lockhart Preston Gates Ellis LLP accused Appaloosa, a New Jersey-based hedge fund, of using the EPCA to kill higher bids.

During cross examination, however, Delphi chief executive officer, Robert S. Miller, noted that no other investment plans had come to the surface, except for a "rumored" deal, referring to overtures made last week by Highland Capital Management LP, which may bring a $2.66 billion offer to the table.

Highland has already made two unsuccessful attempts to propose alternative bids, first in December of last year and then again in August.

But given the current disruptions in the credit market, Miller said it was in Delphi's best interest to push through this investment plan so that it can exit bankruptcy as soon as possible, especially considering that its reorganization plan is predicated on various global settlements, which include deals cut with several unions as well as with its former parent and its biggest customer, General Motors Corp. Moreover, those agreements have an expiration date.

"I wish we had gotten out of here when times were good," Miller told the court.

However, the company focused on getting out as soon as possible, hopefully by February, he said, adding that it was important for the company to do so in order to keep its reputation intact among its customers, suppliers and within the marketplace.

In making the case for the amended investment plan, Delphi attorney John Wm. Butler of Skadden, Arps, Slate, Meagher & Flom LLP noted that the debtors had achieved all that they could in Chapter 11 and that the risk to stakeholders by staying in bankruptcy protection was an "unacceptable risk."

Judge Robert D. Drain of the U.S. Bankruptcy Court for the Southern District of New York indicated that he would rule Friday.

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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