Delphi expected to lose Cerberus plan investment; GM, other investors negotiating framework changes

By Caroline Salls

Pittsburgh, May 24 - Delphi Corp. plan investor Cerberus Capital Management is expected by General Motors Corp. to withdraw from the group of plan investors, and Delphi is now in negotiations with GM and other potential investors regarding related changes to the plan framework agreement, according to an 8-K GM filed with the Securities and Exchange Commission.

GM said it expects the current arrangements outlined in Delphi's framework support agreement will be changed to reflect a number of items, including Cerberus' withdrawal as a plan investor.

GM said it has received proposals from Delphi and from the United Auto Workers union regarding support to be provided by GM as part of Delphi's restructuring, and GM said it believes that the proposals provide a basis for continuing productive negotiations.

Based on the current status of negotiations, GM said its estimate of contingent exposures related to Delphi can be updated to roughly $7 billion from the previously estimated exposures of between $6.5 billion and $7.5 billion.

GM said it expects to reimburse Delphi for roughly $500 million of labor expenses when it emerges from bankruptcy and to provide annual labor-related payments of between $300 million and $400 million, as well as about $100 million of annual transitional payments.

In addition, GM said it still expects that the cost of these reimbursements will be more than offset in the long term by its savings from reductions to the $2 billion price penalty it now pays Delphi annually for systems, components and parts.

As previously reported, Delphi accepted a proposal in December for an equity purchase and commitment agreement, under which the investors would contribute up to $3.4 billion of preferred and common equity in the reorganized company to support Delphi's transformation plan and its plan of reorganization framework agreement.

The original plan investors included 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.

Current plan framework terms

Under the current 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 $45.00 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 of 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 $45.00 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 $45.00 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 $35.00 per share.

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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