Court considers $3.4B Delphi equity plan

Court considers $3.4B Delphi equity plan

	Published : Thu, 11 Jan 2007 21:17 By : Agencies Print this Story

NEW YORK (AFX) - A federal bankruptcy judge on Thursday considered a plan by five private equity and institutional investors to pay as much as $3.4 billion to take a controlling stake in Delphi Corp.

Judge Robert Drain opened a hearing amid objections from the acting U.S. Trustee, the official committee of shareholders in the case and Highland Capital Management LP, which had submitted a rival bid to buy $4.7 billion in shares in the auto parts maker.

The proposed plan would allow affiliates of three private equity investors, Appaloosa Management LP, Cerberus Capital Management LP and Harbinger Capital Partners Master Fund I, as well as Merrill Lynch & Co. and UBS Securities LLC, to buy shares in a restructured Delphi for $1.4 billion to $3.4 billion. It would give the investors a minimum of 30 percent and up to 72 percent of the restructured Troy, Mich.-based company but also depends on consensual resolution of its labor agreements by Jan. 31.

The plan is supported by General Motors Corp. -- Delphi's former parent and its biggest customer -- the company's labor unions, and a committee of unsecured creditors.

Lawyers for the equity committee and Highland argued that the plan would transfer more than $500 million in value to the plan investors at the expense of current shareholders.

Under the plan, an equity committee lawyer said, the investors would be paid a commitment fee and expenses and given a discount on common and preferred shares worth at least $406 million. The plan gives the investors the right to buy at least 40 million shares at $35 a share while the estimated value of shares under the plan is $45.

Equity committee lawyer Bonnie Steingart further argued that the deal was structured to give the investors greater rights than the company to terminate the agreement for 'any or no reason.' It allows investors to withdraw from the agreement from April 1 until the court approves a disclosure statement for a reorganization plan, which is when the debtor can begin soliciting approval of the plan from creditors.

Lawyers asked Chief Restructuring Officer John Sheehan about what information was provided to board members and when, in order to determine whether directors were well-informed about the terms of the deal when they approved it.

The plan was announced Dec. 18, and Highland submitted its offer on Dec. 21, three days later. The board of directors considered the Highland offer and met with its representatives on Jan. 2, but decided on Wednesday to move forward in seeking court approval for the Appaloosa-Cerberus plan.

The U.S. Trustee argued that the plan subverts the usual process of creating and seeking agreement on a reorganization plan.

The hearing continued Thursday afternoon, and at least three other witnesses were planned.

Delphi filed for bankruptcy protection in October 2005 amid a decline in the American auto industry.