Delphi to receive $10.6 billion in support under amended GM agreements

By Caroline Salls

Pittsburgh, Sept. 12 - Delphi Corp. has reached an amended settlement and master restructuring agreement with General Motors Corp. as part of the company's steps to complete the restructuring of its U.S. operations and global transformation, as well as to emerge from Chapter 11 bankruptcy as soon as possible, according to a company news release.

Specifically, Delphi said it expects to receive an estimated $10.6 billion in support from GM for the company's transformation under the amended agreements, up from the $6 billion in support offered by GM in a January 2008 settlement.

Delphi said the GM agreement will also modify the mechanics and expand the amount of Delphi's net hourly pension liability transfer to GM to $3.4 billion from $1.5 billion.

The company said it will also be acting to preserve and fund its hourly and sustained pension plans and to reaffirm the process for the company's 2008 to 2011 business plan through a revised plan of reorganization.

Delphi said a hearing is scheduled for Sept. 23 for approval of its amended global settlement agreement and master restructuring agreement and approval of a motion to freeze the company's hourly and salaried defined benefit pension plans and provide a replacement cash balance or defined contribution pension benefits, a salaried retirement and equalization savings program and a supplemental executive retirement plan.

Under the proposed global settlement and restructuring agreement amendments, the amendments can take effect independent of and in advance of the effective date of Delphi's plan of reorganization. The original agreements required the plan to take effect before GM would hold up its end of the deal.

According to the release, the amended global settlement and master restructuring agreements must be implemented at this time "to preserve the substantial progress the company has made" and to position Delphi to emerge from bankruptcy as soon as possible.

Under the amended global settlement, GM would assume responsibility for the pensions of some of Delphi's hourly retirement plan participants. The liabilities would be transferred in two steps, and would be increased to $3.4 billion from $1.5 billion.

Delphi said the liability transfers are subject to GM and Delphi receiving union consent to complete the first step of the transfer.

Through the implementation of the amended agreements, GM's financial support of Delphi, which previously was to be received upon Delphi's emergence from Chapter 11, is being pulled forward to the effectiveness of the amendments.

As a result, Delphi said GM will make payments of $1.2 billion in connection with the effectiveness of the amended agreements, as well as through the remainder of 2008.

The company said the payments by GM, combined with Delphi's more than $1 billion of existing cash on hand and amounts available under its debtor-in-possession revolving credit facility, will provide the company with enough liquidity over the course of 2008.

In addition, by immediately implementing the amended restructuring agreement, Delphi said it will be in a position to seek exit financing in the capital markets, including through an equity-based rights offering, to support a reaffirmed emergence business plan that incorporates current market conditions and increased GM support.

According to court documents, in exchange for its agreement obligations, GM will have an administrative expense claim equal to 77.5% of a first net liability transfer, which will range from $1.63 billion to $1.86 billion, an administrative claim of $2.055 billion, minus the amount of the first net liability transfer claim and a $2.5 billion general unsecured claim, provided that GM will not be paid for the unsecured claim until all other unsecured creditors have received payment for 20% of their claims.

GM's plan distributions can be converted into preferred stock, provided that Delphi's exit financing does not exceed $3 billion and the company does not issue any equity securities that are senior to the preferred stock.

Stakeholder talks continue

According to the release, Delphi chief restructuring officer John Sheehan said the company has been advised that its official committee of unsecured creditors may no longer support a GM settlement and related transactions if the transactions are approved before the filing and approval of potential plan of reorganization changes that are acceptable to the committee.

Sheehan said Delphi will continue to work toward a consensus among its principal stakeholders, including the committees.

"If approved by the court, these [pension funding] actions and the additional operating support provided in the amended GSA and amended MRA are significant milestones in completing the final phases of the reorganization of our U.S. operations and positioning us to complete the financing required for our emergence from Chapter 11 as soon as practicable," Sheehan said in the release.

Meanwhile, Delphi chief executive officer and president Rodney O'Neal said the company has achieved remarkable progress in its overall transformation.

"Despite recent challenges - including difficult credit markets, the downturn in the U.S. auto industry, and other cost pressures - our operating performance has improved significantly," O'Neal said in the release.

"Our team has accomplished this global transformation in the face of a complete restructuring of a significant portion of our operations."

Transformation plan

O'Neal said Delphi is on track to complete its transformation plan by the end of this year.

The key points of the plan include the following:

• Modifying the company's U.S. labor agreements to create a competitive arena in which to conduct business;

• Concluding Delphi's negotiations with GM to finalize GM's financial support for Delphi's legacy and labor costs and confirm GM's business commitment to the company;

• Streamlining Delphi's global product portfolio to capitalize on its technology and market strengths and align its manufacturing and engineering footprint and capabilities;

• Transforming Delphi's salaried workforce to ensure that the company's organizational and cost structure is competitive and aligned with its product portfolio and manufacturing footprint; and

• Devising a workable solution to Delphi's U.S. pension situation.

If the court approves Delphi's modified GM settlement and the pension plan changes, the company said it expects to enter the capital markets later this year with its revised plan of reorganization and seek court approval of the plan changes.

Delphi, a Troy, Mich.-based automotive electronics manufacturer, filed for bankruptcy on Oct. 8, 2005 in the U.S. Bakruptcy Court for the Southern District of New York. Its Chapter 11 case number is 05-44481.

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