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GM support grows to $10.6B in new plan for Delphi PDF Print E-mail
Monday, 15 September 2008

AP, NEW YORK  -- Delphi Corp. and its former parent General Motors Corp. said Friday they have reached a new deal on the automaker's role in Delphi's bankruptcy that puts the supplier on track to exit Chapter 11 by the end of the year.

The agreement boosts GM's financial support of Delphi to $10.6 billion, up from $6 billion in an earlier plan. That includes the assumption of $3.4 billion in pension obligations for hourly workers, instead of the $1.5 billion predicted earlier.
Delphi also plans to freeze its pension plans for salaried and hourly workers once it has obtained union permission to do so. An earlier agreement with unions allowed Delphi to freeze the pensions but not until the company emerged from bankruptcy.
Delphi will seek court approval for the proposals Sept. 23. The new agreements with GM could allow Delphi to exit bankruptcy by the end of the year, Chief Executive Rodney O'Neal said in a statement.
Friday's announcement fends off the government's pension insurer, which threatened to file a $900 million claim against Delphi if the companies didn't move forward with a plan to transfer hourly pension obligations to GM.
The Pension Benefit Guaranty Corp. had urged the two companies to complete the transfer ahead of a Sept. 30 deadline, when a change in the law makes maintaining Delphi's pensions far more expensive. PBGC Director Charles Millard warned Delphi and GM that the agency would assert claims worth as much as $8 billion if the transfer did not go through in time. That would have diluted any recovery by creditors.
''This is a very encouraging step in the right direction,'' Millard said in a statement Friday. ''As we have always noted, the transfer of a large amount of pension liabilities to GM is a crucial element in restoring Delphi's financial health.''
Troy, Mich.-based Delphi was GM's parts-making unit until a 1999 spin-off. The automaker remains Delphi's biggest customer and has a keen interest in its survival because GM depends on its former subsidiary for parts to keep vehicle production going.
David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., said any money GM invests in Delphi isn't a giveaway. He pointed to the $215 million investment the automaker put into American Axle & manufacturing Holdings Corp., another major GM supplier, to help settle a strike at that company.
''That was not a gift, they get a return on that, they get a return on pricing,'' Cole said. ''Up front it's about $200 million, but with improvements that come from it, the return potential is great.''
Delphi and its former parent have been negotiating the level of GM's financial support as the supplier worked to reformulate its reorganization plan.
Besides the pension obligations, the new $10.6 billion figure includes $1.2 billion in cash through the end of 2008, plus legacy labor costs and costs related to attrition and employee transitions. It does not include any loans to help Delphi exit bankruptcy, GM spokeswoman Renee Rashid-Merem said.
An earlier plan included the participation of a group of equity investors who said they would inject up to $2.55 billion into the company. That deal fell through in April when the investors backed out.
Delphi said GM's proposed $1.2 billion injection would give it ''ample liquidity'' for the rest of the year. Delphi said it had about $1 billion in cash on hand as of the end of June.
Having more cash puts Delphi in better position to pursue loans in the restricted credit markets. The company's ability to get loans has been a key obstacle that has delayed its exit from bankruptcy.
Its former lead equity investor, Appaloosa Management LP, protested vigorously when Delphi struggled to get the loans it needed to exit court protection and GM offered to increase the amount it would lend. Appaloosa said such a deal would diminish its power over the reorganized company.
The two sides are now locked in a separate fraud lawsuit over the group's withdrawal from the deal.
Delphi has been operating under bankruptcy protection since October 2005. The company, with $22.3 billion in sales last year, makes electronic systems for cars, as well as technology for computing, communications, consumer electronics, energy and medical applications.
As part of its transformation, Delphi has shed thousands of unionized workers, shut down U.S. plants and created a two-tier wage system for factory workers while expanding its business in Europe, Asia and South America. The company employs about 169,500 people at 156 plants in 34 countries around the world.

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