Delphi lenders in talks, auction looms: sources

DETROIT Thu Jul 16, 2009 9:39pm EDT

The Delphi Flint East assembly plant is seen in Flint, Michigan June 22, 2007. REUTERS/Rebecca Cook

The Delphi Flint East assembly plant is seen in Flint, Michigan June 22, 2007.

Credit: Reuters/Rebecca Cook

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DETROIT (Reuters) - Bankrupt auto parts supplier Delphi Corp DPHIQ.PK has had talks with bankruptcy lenders readying a bid for its assets that could challenge a proposed sale to private equity firm Platinum Equity, people familiar with the discussions said.

Two people familiar with the discussions told Reuters the bankruptcy lenders had been in touch with Delphi with the aim of reaching an alternative to the Platinum deal, but that no terms had been reached.

The move toward a consensual deal for Delphi comes a day before an auction scheduled to resolve the biggest remaining hurdle to the company's emergence from a nearly four year bankruptcy that has been a cash drain to its former parent, General Motors Co.

Platinum had been at the center of a rival bid brokered by GM and the U.S. Treasury to acquire most of Delphi's global operations but Delphi's debtor-in-possession lenders remain opposed to that deal.

A rejection of the Platinum deal would represent one of the first and only legal setbacks for the Obama administration's autos task force in the $50-billion government-funded restructuring of GM in a fast-track bankruptcy.

Because the U.S. Treasury provided bankruptcy financing to GM, government officials had a dominant say in the shape of the new company that emerged from bankruptcy last week.

But the government has had less direct influence in the end game for Delphi, which remains a crucial parts supplier to GM with the power to shut down the assembly plants of the automaker, now majority owned by the government.

The U.S. Treasury had favored a deal negotiated in the days before GM's June 1 bankruptcy filing that would have allowed GM to provide $2 billion in cash plus credit to support Platinum's buyout of Delphi.

Delphi's bankruptcy lenders, who are owed $3.5 billion, said in a court filing on Wednesday that they would present a credit bid on Friday to take over the parts supplier.

Those lenders include Elliott Management, Silver Point Capital and Monarch Alternative Capital.

AUCTION SET FOR FRIDAY

"As will be evident on (Friday) the DIP lenders' credit bid will represent a higher and better offer to Delphi," the lenders said in a court filing.

GM and Delphi declined to comment. Representatives of the group representing Delphi lenders could not be immediately reached.

Platinum said it remained confident it would have the strongest bid when terms are reviewed by Delphi on Friday.

"We expect Delphi and General Motors to support the highest and best offer to emerge from that auction, provided the winning bidder meets certain requirements to ensure that Delphi continues to operate as a stable, long-term supplier to GM and other global automotive customers," Platinum principal Mark Barnhill said in a statement.

"To date, Platinum Equity has offered the only proposal that meets those requirements," he said.

The New York Times reported on Thursday that Delphi had reached terms on an agreement with its bankruptcy financing lenders and GM on a new plan to emerge from bankruptcy.

The newspaper reported that the proposed alternative deal would allow GM to take back four plants and Delphi's steering business as it plans under the Platinum proposal.

GM Chief Executive Fritz Henderson said last week that it was not certain if the automaker's financial support for the Platinum deal could be transferred to another bidder.

Delphi lenders have called the proposed sale to Platinum a sweetheart deal negotiated in private in a way that was meant to protect Delphi's board and GM at the expense of lenders who should be first in line for a recovery in bankruptcy.

"There is a strong likelihood that Delphi will persist in its misguided scheme of undervaluing its business so as to benefit its former parent GM and GM's hand-picked 'guys in suits'," the lenders said in their Wednesday filing.

Delphi, which filed for bankruptcy protection in October 2005, saw a previous plan to emerge from Chapter 11 fall through in April 2008 when investors backed out of a plan to provide $2.55 billion in financing.

The parts supplier was spun off from GM in 1999 and had been consistently unprofitable before then chief executive Steve Miller, now chairman, took the company into Chapter 11.

At least six suitors had considered bidding for the company, sources said previously, although TRW, Blackstone Group LP (BX.N) and Appaloosa Management decided not to bid.

Delphi said Friday that no alternatives to the Platinum deal had been submitted by that deadline for outside interest.

(Reporting by David Bailey, Kevin Krolicki, Soyoung Kim, Caroline Humer, Phil Wahba and Jui Chakravorty; editing by Carol Bishopric)

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