A federal bankruptcy judge said Wednesday that auto parts manufacturer Delphi Corp. (DPHIQ.PK) needs to open the sale of assets to other potential buyers, rather than using a plan floated by General Motors Corp. (GM, GMQ.PK), so that the sale results in best possible return for stakeholders.
The ruling is likely to benefit Delphi lenders who prefer an open bidding process. On Friday, automaker General Motors filed documents with the Securities and Exchange Commission laying out a plan where GM and Parnassus Holdings II, LLC, an affiliate of private equity firm Platinum Equity would buy up Delphi assets to emerge from its nearly four-year bankruptcy
However, several lenders that provided bankruptcy funding to the Troy, Michigan-based Delphi said in U.S. bankruptcy court in Manhattan on Wednesday that they were seeking to make their own competing offer for Delphi's assets.
Delphi, a former division of GM, was spun off as an independent supplier in 1999. Delphi filed for protection under Chapter 11 in October 2005. Last week, Delphi announced a deal to sell most of its global operations to equity firm Platinum Equity, which will operate Delphi's businesses both in the U.S. and abroad.
General Motors, still the largest customer of Delphi, will provide $2 billion to help finance the deal. It also will buy some of Delphi's North American plants, including its global steering business. Other "non-core" plants and assets will be sold off over time.
In addition, GM also will provide a $250 million credit facility to keep the company going until its expected emerge from bankruptcy protection late this summer, along with a $500 million loan facility following the sale.
If successful, the deal could lift Delphi out of Chapter 11 after nearly four years of court oversight as early as this summer.
The lenders, which provided senior debtor-in-possession financing to Delphi, wanted access to information about the deal between Platinum and GM so that they could decide whether to submit their own "credit bid" for Delphi.
U.S. Judge Robert Drain said potential bids from Delphi Corp.'s lenders and other parties need to be considered before a transaction between Delphi and Parnassus Holdings can be allowed to go through.
If Delphi can not convince creditors to support the deal before a July 23 hearing, it would resort to a 363 sale, which outlines the process for an auction of assets that the court oversees.
Drain gave preliminary approval for the use of the $250 million credit facility on Wednesday.
John Butler, a lawyer for Delphi, rejected the lenders' claims saying the lenders could have made this offer at any earlier date and without the $4 billion in financing which GM is providing Delphi would be in liquidation.
But attorneys for some of Delphi's secured lenders said that the company shouldn't succumb to the demand of GM and the government, despite the relationship between the two companies.
Delphi remains one of General Motor's key suppliers and GM has taken more than $11 billion of charges to help the company's reorganization along. GM, which also has filed for bankruptcy, received court approval at a hearing last week to continue providing support to its suppliers.
DPHIQ.PK closed Wednesday's regular trading at $0.083.
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