A judge approved $950 million in financing on Tuesday for auto supplier Delphi Corp., which is expected to consolidate or divest a significant portion of its U.S. plants during its stay in bankruptcy court.
The debtor-in-possession loan, assembled by a large consortium of lenders led by J.P. Morgan Chase & Co. and Citigroup Inc., will help the company to operate during its bankruptcy, which is expected to end in early 2007.
U.S. Bankruptcy Judge Robert Drain also signaled at Tuesday evening's hearing that he would extend an order allowing Delphi to continue paying employees' salaries and benefits. A temporary order to do so was granted Saturday, when the auto supplier filed for Chapter 11 bankruptcy protection from creditors. That order was due to expire Tuesday.
"It makes sense to extend" the order, Drain said.
Earlier, an attorney for Troy, Mich.-based Delphi said the company had filed for bankruptcy "to deal with our legacy liabilities in the U.S." He added that much of Delphi's profit is generated abroad and that "we don't make money on what we produce here in the U.S."
Attorneys for the company also defended the recent extension of a severance package for executives, saying the company had sought "non-compete" agreements from them to protect its business interests.
Delphi beefed up the severance agreements for 21 of its top executives on Friday, the day before it filed for bankruptcy. Under the new agreement, executives will be eligible for 18 months of pay and at least a portion of their bonus if Delphi lays them off or they leave voluntarily. Previously severance packages were capped at 12 months. In exchange, the executives signed agreements promising not to work for competitors for the 18-month period.
Separately on Tuesday, the federal agency that insures pension plans said the bankrupt auto supplier's pension plan is underfunded by $10.8 billion.
The amount takes into account any assets the company already has in the plan, Pension Benefit Guaranty Corp. spokesman Jeffrey Speicher said.
Delphi could shift some of its pension obligations to the PBGC as part of its restructuring. But Speicher said the PBGC would insure no more than $4.1 billion, or less than half the total necessary to meet Delphi's obligations to retirees.
General Motors Corp., which spun off Delphi in 1999, also could be liable for some of Delphi's retirement benefits. GM said this week it may have to assume up to $11 billion in retirement benefits for union-covered employees who transferred from GM to Delphi.
Delphi is the largest U.S. auto supplier. It has 50,600 U.S. employees, including 34,750 hourly workers and 15,850 salaried workers.