Delphi's end to bankruptcy in sight: Judge approves company's plan to emerge from Chapter 11

For two days, New York U.S. Bankruptcy Judge Robert Drain heard more than 1,900 objections -- mostly from former Delphi employees displeased with their benefit packages -- before approving a plan allowing Delphi's Debtors-in-Possession -- financiers whose money allowed Delphi to continue operating while in bankruptcy -- to purchase a bulk of Delphi's assets.

"This has been difficult in many ways," said Linda S. Ferries, communication representative for Kokomo's Delphi Electronics and Safety. "I feel, based on everything, we will emerge as a strong company with the ability to be successful."

The DIPs were represented by JP Morgan Chase Bank. They exchanged the $3.5 billion Delphi owed them for a majority of the automakers' assets.

In addition, Delphi's former parent company, General Motors Co. is providing close to $3 billion in the deal as well as purchasing four Delphi plants and its global-steering business.

GM, which has spent billions keeping Delphi alive since its Oct. 11, 2005, bankruptcy filing, also supported the plan.

In a statement, DIP Holdings Co. said it will liquidate Delphi's remaining assets; CEO Rodney O'Neal will remain in his position and executive chairman Robert S. Miller will step down once the company is completely out of bankruptcy.

"We deeply appreciate the support of Delphi by all its customers, employees, suppliers and other stakeholders during one of the most challenging periods in automotive history," said O'Neal. "We have taken the necessary actions to position Delphi as a competitive enterprise with a pipeline full of outstanding technologies that help our customers meet the demands of their consumers. We look forward to the future of our new ownership."

And a new ownership is good for the company and community, said a bankruptcy attorney.

"For the company, this is good. For Kokomo and Howard County, this is good because you still have a tax-paying business and a vital employer," said Jeffrey A. Schreiber, a bankruptcy attorney with the Schreiber Law Firm LLC. "In a bankruptcy proceeding, the judge will do what is in the best interest of the debtor's estate. There are going to be some who will not get paid in full, but it is in the best interest of the company to keep it in business; the worst would be for the company to be liquidated."

However, this was not the deal that Kokomo's second-largest employer began with this week.

It was expected Delphi's new principal owner would be the California equity firm Platinum Equity LLC. Platinum, GM and Delphi had agreed to a $3.6-billion deal in which GM would provide $2.5 billion and Platinum would provide $500 million.

In the deal, GM would have received four Delphi plants -- including Kokomo's Electronics and Safety facilities -- and the global steering division, assume $1.1 billion of Delphi's debt and not seek repayment of $1.6 billion in Delphi pension claims.

Platinum's affiliate, Parnassus Holdings II LLC, would have acquired much of Delphi's U.S. and foreign operations.

But Delphi's DIPs were against the proposed deal because they would have only received 20 cents on the dollar for their claims. As a result, Sunday and Monday began with negotiations between Delphi, GM, Platinum and the DIPs. The DIPs presented a credit-bidding deal forgiving $3.5 billion Delphi owed in exchange for a substantial supply of the supplier's assets.

Along the way, to put itself in a better position to leave bankruptcy, Delphi passed its hourly and salaried pensions on to the federal Pension Benefit Guaranty Corp., and saddled it with a $6.2-billion liability.

Although Platinum's bid was rejected, the company isn't leaving New York empty handed. The DIPs and GM are paying Platinum $30.5 million for expenses incurred during the bidding process.

"Through this process, Platinum has earned the trust and endorsement of the U.S. Government, GM, Delphi, and the UAW, further validating Platinum's approach, underscoring Platinum's operational capabilities, and positioning Platinum for further success as we manage our existing automotive businesses and explore new opportunities in the sector," said Mark Barnhill, principal at Platinum.

"Our ability to create a framework and secure liquidity for Delphi's emergence through our work with the U.S. Automotive Task Force and GM was a unique showcase of our capabilities and we are happy to have played the leading role in this effort."

Delphi, which spun off of GM in 1999, is GM's top supplier. However, since filing for bankruptcy, Delphi has shrunk into a much smaller, less profitable company.

In 2005, Delphi had 41 U.S. plants. In 2008, it was down to 4. Its 2005 global revenue shrank from $22.59 billion to $18.06 billion in 2008.

During the same time period, sales to GM dropped from $12.8 billion to $5.56 billion. Even once it exits bankruptcy, Delphi spokesman Lindsey Williams estimates the company's annual sales will be less than $10 billion.

For an economist who watched the auto industry's largest bankruptcy, Dr. Robert E. Scott says Delphi's emergence from bankruptcy by Sept. 30, if attained, will be "good news." Yet he called the company's treatment of its employees "unbelievable."

"They tore apart that company piece by piece," said Scott, senior international economist for the Washington, D.C.-based Economy Policy Institute. "They savaged their workers' wages and benefits. They are a highly profitable company off shore. Their fate now depends on the domestic auto industry, which is in its worst slump since the 1960s. People are going to have to buy cars to see a big turnaround."

Now known as well for its bankruptcy and failed exits as for its core products -- which include telematics, engine management, occupant protection, climate control and consumer electronics -- finally emerging from bankruptcy can allow Delphi to return to business as usual.

"The overall reach to this is it is good for the automotive industry. For a company the size of Delphi, this has been a distraction," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "They are going to be a different company. They have good technology so I see them being a profitable company.

"Now that they've gotten away from this [bankruptcy] and it is completed, they should be ready to go."

--K.O. Jackson is the Tribune's business writer. He can be reached at (765) 854-6739 or via e-mail kirven.jackson@kokomotribune.com

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