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Credit woes threaten Delphi bankruptcy exit

/ Source: The Associated Press

A plan by auto parts supplier Delphi Corp. to exit bankruptcy by the end of next month is in jeopardy as it struggles to get $6.1 billion in loans in the tight credit market.

If the company does not secure exit financing by the end of March, equity investors led by hedge fund Appaloosa Management LP could abandon a deal to invest as much as $2.55 billion. The deal is crucial to Delphi's ability to emerge from Chapter 11 protection.

Delphi spokesman Lindsey Williams declined to say how much of the needed loans are secured. "Some of it has been completed," he said. "The entire package is not complete."

"The process has been challenging because of the volatility in the credit markets, but it's important to move forward," Williams said. "This is one of the last major hurdles we need to get through."

General Motors Corp. Chief Financial Officer Fritz Henderson said on Tuesday that credit market conditions have prevented Delphi from getting the loans it needs. GM was the parent company of Troy, Mich.-based Delphi until a 1999 spin-off and is still one of Delphi's biggest customers.

"At this point, GM is exploring alternatives with Delphi in the event that the planned financing level can't be achieved," Henderson said.

Further complicating the situation is that Appaloosa's deal requires that any loans would not cost more than $585 million in interest in 2008. If Delphi can't get loans that meet that condition, GM may need to step in, and that could disrupt the balance of interests between the Appaloosa-led investors, GM and the equity and creditor committees that was reached in earlier negotiations.

Delphi may also be forced to seek an extension from the court to retain exclusive control over its exit plan if it isn't able to leave court protection by the end of March. A bankruptcy judge approved its exit plan in January.

Appaloosa is joined by five other equity investors: Harbinger Capital Partners Master Fund I Ltd.; Merrill Lynch, Pierce, Fenner & Smith Inc.; UBS Securities LLC; Pardus Capital Management LP, and Goldman Sachs Group Inc.