Key Investors Oppose GM Loan to Delphi

Key Delphi Corp. investors are opposing a new US$300 million General Motors loan to Delphi until the bankrupt auto supplier fixes its North American business.
A group led by Highland Capital Management LP said in a letter to Delphi’s board of directors that the new financing by GM would benefit only GM while stripping worth from creditors imperiled by Delphi’s continuing massive losses in North America.
The Highland letter is dated Aug. 27, 2008. It was posted Friday, Sept. 5, with the U.S. Securities & Exchange Commission.
The US$300 million pledged would be on top of US$650 million that GM has already agreed to loan Delphi as it seeks to emerge from nearly three years of Chapter 11 bankruptcy protection.
But instead of accepting a GM loan that would be quickly eaten by additional losses, Delphi should make further operating cuts and raise prices on GM parts that are currently losing money for Delphi, Highland said.
The proposed GM loan also has conditions that would give the automaker a disproportionate say in any new reorganization plan, Highland said. Delphi needs a new reorganization plan because an equity group led by Appaloosa Management LP has withdrawn a commitment to inject up to US$2.55 billion into Delphi to allow it to emerge from Chapter 11 protection.
Delphi is suing the Appaloosa group to force the equity follow-through. Appaloosa pulled out because Delphi could not raise the $6 billion needed in exit borrowings in the constricted credit markets.
Highland said a GM loan is meant to keep parts flowing from Delphi at prices that are causing Delphi losses. Delphi is one of GM’s largest suppliers. It sold about US$3.12 billion in parts to the automaker in the first half of 2008.
Highland said Delphi must do more to improve North American performance through reasonable parts pricing and more union concessions if necessary. Highland said that while Delphi’s overseas operations are profitable, its North American operations “continue to lose staggering sums of money and drag down the rest of the business.”
In the second quarter, Delphi’s loss from continuing operations was more than US$500 million. Those operations also burned through more than US$960 million in net cash in just the first six months of 2008.
Delphi, the largest company in auto industry history to seek bankruptcy court protection, filed for Chapter 11 in October 2005.
GM has given Delphi until October 31, 2008, to file a new plan of reorganization.
The plan of reorganization is subject to approval by the court and creditors.
The Highland-led investor group remains a major Delphi shareholder and holds about $495 million in Delphi senior debt notes.