Delphi accepts new $2.55 billion equity and plan framework agreement; Appaloosa lead investor

By Caroline Salls

Pittsburgh, July 18 - Delphi Corp. has accepted a new $2.55 billion proposal for an equity purchase and commitment agreement with affiliates of lead investor Appaloosa Management LP, Harbinger Capital Partners Master Fund I, Ltd., Merrill Lynch, Pierce, Fenner & Smith Inc., UBS Securities LLC, Goldman Sachs & Co. and Pardus Capital Management, LP, according to a company news release.

As previously reported, Delphi terminated its original $3.4 billion equity purchase and commitment agreement and plan framework support agreement with Cerberus Capital Management, LP on July 7.

Specifically, the investors will contribute up to $2.55 billion in preferred and common equity in the reorganized Delphi to support the company's transformation plan and its plan of reorganization.

Delphi said the new investment agreement is supported by both of its statutory committees, as well as General Motors Corp.

"Today's equity purchase and commitment agreement - and the support that it has received from our statutory committees and GM - represents additional progress in our transformation and provides further evidence to customers and other stakeholders that Delphi should receive the financial support necessary to emerge successfully from Chapter 11 reorganization," Delphi chief restructuring officer John Sheehan said in a news release.

"With the recent ratification of the UAW/Delphi/GM memorandum - still subject to court approval later this week - Delphi is now focusing on reaching labor agreements with its remaining U.S. unions and finalizing a settlement agreement with GM.

"We're pleased with our recent momentum. We now expect to file our plan of reorganization before the end of the third quarter and to emerge from Chapter 11 reorganization by the end of the year."

According to the release, the proposed equity purchase and commitment agreement, which is subject to approval of the U.S. Bankruptcy Court for the Southern District of New York, outlines the terms of the investment and the expected treatment of the company's stakeholders in its anticipated plan of reorganization and provides a framework for several other aspects of the company's Chapter 11 reorganization.

Delphi said the investment agreement also incorporates its earlier commitment to preserve its salaried and hourly defined benefit U.S. pension plans and will include an arrangement to fund required contributions to the plans that were not made in full during the Chapter 11 process.

Equity investment

Under the terms of the equity purchase and commitment agreement, the plan investors will commit to purchase $800 million of convertible preferred stock and about $175 million of common stock in the reorganized company.

Additionally, the plan investors will commit to purchasing any unsubscribed shares of common stock in connection with a $1.6 billion rights offering that will be made available to existing common stockholders, which would be launched following confirmation of Delphi's plan of reorganization and conclude 30 days thereafter, but before Delphi's emergence from Chapter 11.

Unlike the company's previous investment agreement, closing conditions in the new agreement are not subject to due diligence, and the plan investors can no longer make unilateral decisions related to the agreement.

Plan of reorganization framework

Creditor treatment under the proposed plan will include:

• All senior secured debt will be refinanced and paid in full and all allowed administrative and priority claims will be paid in full.

• Up to $1.7 billion in trade and other unsecured claims and unsecured funded debt claims will be satisfied in full with $3 billion of common stock, or 66.7 million shares out of a total of 147.6 million shares in the reorganized Delphi, at a deemed value of $45 per share, as well as $1.2 billion in cash;

• In exchange for GM's financial contribution to Delphi's transformation plan, and in satisfaction of GM's claims against the company, GM will receive $2.7 billion in cash and an unconditional release of any alleged estate claims against GM.

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

• All subordinated debt claims will be allowed and satisfied with $478 million of common stock, or 10.6 million shares out of a total of 147.6 million shares in the reorganized Delphi at a deemed value of $45 per share; and

• Holders of equity securities will receive $66 million of common stock, or 1.5 million shares out of a total of 147.6 million shares in the reorganized Delphi, at a deemed value of $45 per share; warrants to purchase an additional 5% of the new common stock during a five-year period at an exercise price of $45 per share; rights to purchase about 41 million shares of new common stock for $1.6 billion at a deemed exercise price of roughly $38 per share; and rights to purchase $572 million of common stock at an exercise price of $45 per share, which will result in adjustments to the stock and cash distributions to be made to the unsecured creditors and Appaloosa.

Corporate governance structure

Under the proposed plan, the reorganized Delphi will be governed by a nine-member board of directors, including an executive chairman and the company's chief executive officer.

Six of the nine directors will be required to be independent of reorganized Delphi and the plan investors.

Delphi said a five-member selection committee will select the company's post-emergence executive chairman, have veto rights over all directors nominated by the plan investors and statutory committees and appoint directors to all board committees.

The selection committee will consist of Delphi lead independent director John D. Opie, a representative of each of Delphi's two statutory committees and a representative from Appaloosa and one of the other co-investors.

Appaloosa, through its proposed series A-1 preferred stock ownership, would have some veto rights regarding extraordinary corporate actions like change-of-control transactions and acquisitions or investments in excess of $250 million in any 12-month period.

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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