Exclusive: Delphi picks six banks for Q3 IPO, sources say

NEW YORK (Reuters) - Delphi Automotive has chosen JPMorgan Chase (JPM.N) and Goldman Sachs (GS.N) to lead an initial public offering that could value the auto parts maker at more than $10 billion just two years after it emerged from bankruptcy, six sources familiar with the matter said.

The IPO, expected as early as the third quarter according to the sources, would represent a major payout for a group of investors led by hedge funds Silver Point Capital LP and Elliott Management, which acquired Delphi in late 2009.

While no decision has been made on the size of the stock offering as each investor weighs whether to participate or how much of their stock to sell in the deal, Delphi as a whole could be worth about $10 billion, one of the sources said.

A separate source said that Delphi could command a market valuation of as much as $12 billion to $14 billion based on projected 2012 earnings.

The preliminary IPO size remains in flux, all of the people said, but one source familiar with the matter said that it could potentially be in the range of $1 billion to $1.5 billion.

The IPO of Delphi -- a former affiliate of General Motors Co (GM.N) and still a major supplier for the top U.S. automaker -- comes as the U.S. auto industry emerges from the punishing downturn of the late 2000s.

Four other banks -- Barclays Capital (BARC.L), Deutsche Bank (DBKGn.DE), Citigroup Inc (C.N) and Bank of America Merrill Lynch (BAC.N) have been picked as joint bookrunners for the IPO, the five sources said.

The creditor group acquired control of Delphi in October 2009 by forgiving nearly $3.5 billion of bankruptcy loans it bought from previous bankruptcy lenders, and investing $900 million in capital in the company.

It was not immediately clear how much each investor would sell, but that bet appears to be paying off as the auto market has rebounded since the financial crisis and Delphi shed most of its liabilities and trimmed expenses in the four-year-long Chapter 11 restructuring.

The company is expected to file initial paperwork with the U.S. Securities and Exchange Commission in coming weeks, the sources said.

It is also expected to secure a $1.25 billion revolving credit facility for future liquidity purposes -- upsized from a $500 million revolver already committed by JPMorgan -- three sources said.

"Our board and the market will ultimately determine the timing and the probability of an IPO and the Delphi team is focused on creating value for the company and its stakeholders," Delphi spokesman Lindsey Williams said in a statement. He declined to elaborate.

The sources declined to be identified because they were not authorized to speak with the media. Representatives for the six banks declined to comment.

A ONCE STORIED COMPANY

The No.1 U.S. auto supplier when it filed for bankruptcy in 2005, Delphi succumbed to high costs for wages and legacy benefits inherited in its spinoff from GM in 1999 along with low- or no-margin business.

It took the government-managed bankruptcies of Chrysler and GM in 2009 to surpass the Delphi bankruptcy in size and complexity for the auto industry.

Delphi went through a series of failed attempts to exit bankruptcy. Investors led by Appaloosa Management in April 2008 backed out of a plan that would have provided $2.55 billion of exit financing.

Delphi's reliance on GM has been sharply reduced by its restructuring and the automaker -- which went through its own bankruptcy restructuring in 2009 -- represented just over 20 percent of Delphi's sales last year. GM once accounted for 85 percent of Delphi's revenue.

Despite concerns about volatile oil prices and a slow rebound in consumer spending, the auto industry shows signs of accelerating a recovery. U.S. auto sales totaled 13.2 million vehicles on a seasonally adjusted annualized rate in April, compared with 10.4 million vehicles for the full 2009 year.

Delphi posted $1.36 billion in earnings before interest, tax, depreciation and amortization (EBITDA) in 2010 on sales of $13.8 billion, and people close to the company say it is set to improve earnings substantially this year and next.

One of the sources said that Delphi's EBITDA is expected to surpass $2 billion in 2012 and based on auto sector multiples of between 5 to 7 times forward earnings, the company could justify a market valuation of up to $14 billion.

The underwriting syndicate was selected less than two months after Delphi bought stakes in the company held by GM and the Pension Benefit Guaranty Corporation for about $4.4 billion in March, a transaction that simplified its capital structure.

Delphi, which once made a very broad array of auto parts, has narrowed its scope to better-performing businesses such as electronic and safety components, and powertrain, thermal and electrical and electronic systems.

(Reporting by Soyoung Kim in New York and Philipp Halstrick in Frankfurt, additional reporting by Deepa Seetharaman in Detroit and Clare Baldwin in New York; Editing by Bernard Orr)