Judge Approves Delphi Investor Scheme

A Federal Bankruptcy Court today approves a plan by investors to pour up to $3.4 billion into auto parts supplier Delphi Corp.

Under the plan, affiliates of three private equity investors – Appaloosa Management LP, Cerberus Capital Management LP and Harbinger Capital Partners Master Fund I, along with Merrill Lynch & Co. and UBS Securities LLC – have the right to buy shares in a restructured Delphi for $1.4 billion to $3.4 billion.

U.S. Bankruptcy Judge Robert Drain called the approval a “watershed event” in the case.

Delphi board members chose the Appaloosa-Cerberus plan over a competing $4.7 billion offer by Highland Capital Management LP, a current shareholder, published reports say.

General Motors Corp., Delphi’s former parent and its biggest customer, supports the deal, as do the supplier’s labor unions and a committee of unsecured creditors.

Delphi Executive Chairman Robert S. Miller is quoted as saying the investor group brings with it the best chance of reaching settlements with its labor unions and GM, deals that are essential to the transformation of the auto parts maker as it attempts to exit bankruptcy in the first half of this year.

According to the plan, Appaloosa, which already owns about 9.3% of Delphi, and Cerberus will take the biggest stakes in the Troy, MI-based company. The plan allows the investors to buy a minimum of 30% and up to 72%, but depends on Delphi reaching agreements with its labor unions and GM by Jan. 31.

GM has been subsidizing Delphi by paying a $2 billion annual premium above market price for parts. The auto maker has agreed to take back as many as 5,000 Delphi workers as part of the supplier’s restructuring.