Judge approves Delphi settlement with objecting bondholders, calls reorganization plan 'feasible'

By Rebecca Melvin

New York, Jan. 17 - A last-minute settlement between Delphi Corp. and a group of objecting senior bondholders was approved in substance at Delphi's confirmation hearing Thursday at the U.S. Bankruptcy Court for the Southern District of New York.

Under the settlement, the ad hoc bondholders committee members are now allowed to be reimbursed for expenses incurred from Sept. 1 through Jan. 17, for a total fee reimbursement of up to $5 million.

Judge Robert D. Drain, who called the settlement "fair," did have one question regarding whether or not objecting bondholders who had subsequently withdrawn their objections should be allowed to apply for part of the settlement fee reward. One such investor was Castlerigg Master Investment.

Among bondholders who filed the latest objection on Jan. 11 - asking the court to reject Delphi's reorganization plan as unfair - were Davidson Kempner Capital Management LLC, Elliott Associates LP, Nomura Corporate Research & Asset Management Inc., Northeast Investors Trust and Whitebox Advisors LLC.

Drain asked the parties involved to present him with a proposed order for him to sign.

Of the bondholders' settlement, Delphi attorney John William Butler Jr. of Skadden, Arps, Slate, Meagher & Flom told Prospect News: "I don't know if that's what they wanted, but that's what they got."

The settlement seemed to take many by surprise. The U.S. Trustee told the judge she was handed the motion just five minutes earlier.

A source with counsel for a minor creditor said he had expected a fight, and had attended the hearing to get in on the arguments.

Judge expects adequate exit financing

As the hearing progressed, it became evident that Drain was leaning toward approving the plan. He put Delphi chief restructuring officer John Sheehan on the stand to have him affirm under oath that he still stands by his declaration of Jan. 9 that Delphi will be able to secure necessary financing to exit Chapter 11 bankruptcy based on discussions with the company's banks.

Some objectors indicated they thought plan confirmation should be deferred due to uncertainty regarding exit financing.

Sheehan was asked in testimony filed with the court whether he thought it was a slam dunk that Delphi would be able to secure the necessary financing. His response was that he didn't believe anything is a slam dunk under current market conditions.

Nevertheless, Drain said that based on the record before him, he believes a determination can be made, and that the plan is "feasible."

"Based on JP Morgan and Citibank, based on Delphi's business plan as vetted by its professionals, and as its financials indicate... it can support the exit financing," Drain said.

"That it's not a slam dunk...is something I would expect any accountant to say," he said.

Delphi has indicated that it can obtain commitments by Jan. 23 for $6.1 billion in loans to exit bankruptcy.

Delphi has "made it abundantly clear that they are proceeding as quickly as possible to emerge from Chapter 11," Drain said.

Delphi posted a loss of $1.2 billion in the third quarter on sales of $6.2 billion and is valued at $13.4 billion in its plan, down from $13.9 billion in an earlier plan.

On Wednesday Delphi announced that its plan of reorganization was accepted by 81% of votes cast.

By amount, holders $2.084 billion, or 78%, of general unsecured claims voted to accept the plan. This number doesn't include ballots cast by General Motors Corp. plaintiffs in the company's multi-district litigation or interest holders. GM holds a $2.57 billion claim, and the litigation creditors hold $57.2 million in claims.

Holders of $1.191 billion, or 70.8%, in amount of senior notes claims voted to accept the plan, while 29.2% of holders by amount of $491.8 million voted to reject it.

On Friday, matters pertaining to Delphi unions, among other things will be heard.

Delphi had about 33,000 union workers and 12,000 retirees, compared to Dana Corp., another automotive parts supplier, under Chapter 11 bankruptcy protection, which had about 6,000 union members and 12,000 retirees.

Delphi is a Troy, Mich.-based automotive electronics manufacturer, which filed for bankruptcy on Oct. 8, 2005. Its Chapter 11 case number is 05-44481.

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