Delphi granted approval to fund severance payments under Spanish plant closing

By Caroline Salls

Pittsburgh, July 19 - Delphi Corp. debtor Delphi Automotive Systems (Holding) Inc. obtained court approval to provide $163 million to wholly owned subsidiary Delphi Automotive Systems Espana SA to fund severance payments in connection with a plant closure, according to a Thursday filing with the U.S. Bankruptcy Court for the Southern District of New York.

According to the motion, under its Spanish "concurso" insolvency proceeding, Delphi Automotive Systems Espana agreed to make a separation payment of 45 days' salary to workers at its former Cadiz, Spain, plant.

In exchange for Delphi Automotive Systems (Holding) providing the funding, the Spanish subsidiary's receivers have agreed that, upon approval of the collective layoff procedure by the Spanish court, creditor approval of Delphi Automotive Systems Espana's plan of reorganization, payment of at least 66 2/3% of creditors' pre-concurso claims within three years and payment in of full of post-concurso claims, Delphi Automotive Systems (Holding), Delphi, all other Delphi affiliates and each of their directors and officers will be released from any liability related to Delphi Automotive Systems Espana and its concurso proceedings.

Delphi said that the Spanish subsidiary believes that if it does not accept the terms of the separation plan, the Spanish court may dismiss the layoff plan, and its creditors may claim that Delphi Automotive Systems Espana's directors, as well as Delphi Automotive Systems (Holding) and/or Delphi under a "shadow director" theory, could be exposed to potential litigation.

According to an 8-K filed with the Securities and Exchange Commission, Delphi recorded $61 million in the first quarter of 2007 as a component of cost of sales related to its committed voluntary contribution of funds to satisfy the minimum separation allowance to which affected employees are entitled under applicable Spanish law.

Then, as part of the concurso process, Delphi Automotive Systems Espana negotiated the social plan and related layoff procedures, including the separation allowance.

According to the 8-K, the separation plan is still subject to approval by the Spanish court, with a hearing scheduled for July 31.

Delphi said the total year-to-date expense through June 30 associated with the exit of the Cadiz site was about $268 million, of which $61 million was recorded in the first quarter of 2007 and approximately $207 million will be recorded in the second quarter of 2007 as a component of cost of sales.

Pension plan funding waiver extensions

In addition, Delphi said in the 8-K that the Internal Revenue Service extended the dates by which Delphi is required to file a plan of reorganization and emerge from Chapter 11 bankruptcy in connection with its conditional pension plan funding waivers.

The plan-filing deadline was extended to Dec. 31 from July 31 and the bankruptcy exit deadline to Feb. 28, 2008 from Nov. 15.

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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