updated 12/21/2006 9:15:53 AM ET 2006-12-21T14:15:53

Highland Capital Management LP proposed a refinancing plan worth up to $4.7 billion to Delphi Corp.’s board on Thursday, competing with a plan already accepted by the nation’s largest auto parts maker earlier this week.

On Monday Delphi said an investor group led by Appaloosa Management LP and Cerberus Capital Management LP would spend as much as $3.4 billion to help the company out of bankruptcy protection.

In a letter to Delphi’s board, Dallas, Texas-based Highland Capital, a hedge fund that owns 8.9 percent of Delphi, said it opposed the earlier plan and outlined its own proposal.

Delphi spokesman Lindsey Williams said the company had no immediate comment.

Appaloosa and Cerberus didn’t immediately return messages seeking comment.

Troy-based Delphi filed for bankruptcy protection in October 2005.

Under Monday’s deal, Appaloosa, Cerberus and Harbinger Capital Partners Master Fund I, as well as Merrill Lynch & Co. and UBS Securities LLC, would invest a minimum of $1.4 billion and a maximum of $3.4 billion in the struggling company in exchange for common and preferred stock that will be issued in the first half of next year.

Of the new investors, Cerberus and Appaloosa are the largest under the plan announced Monday. Delphi had said the new investors would buy 30 percent to 72 percent of Delphi’s new stock, depending on how many current stockholders decide to exercise their option to buy the new stock.

Highland Capital said the deal was unfair in part because some debt holders would receive cash and equity worth more than 100 cents on the dollar at the expense of common stockholders and would give Appaloosa and Cerberus control of Delphi’s board by allowing them to name six of 12 directors.

Under Highland Capital’s plan, existing stockholders will be able to participate in a $4.7 billion rights offering. All existing stockholders with more than 0.5 percent of the common shares would have the right to purchase any unsubscribed shares in the rights offering. Terms as proposed for the negotiated deal between General Motors Corp. and Delphi would remain the same, Highland Capital said.

Delphi said Monday’s agreement was part of a plan to emerge from bankruptcy protection by the second quarter of 2007. A reorganization framework agreement, signed by Delphi, the investors and former parent GM, was included in the deal.

Those agreements still must be approved by a federal bankruptcy judge in New York, where a hearing was scheduled for Jan. 5. But Highland Capital said Thursday that Delphi should have more time to consider its options.

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