Delphi says GM help "only path" to financing

NEW YORK (Reuters) - A plan by General Motors Corp GM.N to provide additional loans to auto parts maker Delphi Corp DPHIQ.PK is key to the company's ability to secure financing and does not violate the terms of its bankruptcy emergence plan, a lawyer for Delphi argued in court on Friday.

Former Delphi parent GM said earlier this week it was ready to provide up to $2.8 billion in additional loans to Delphi to help to complete a $6.1 billion financing package that would allow its exit from bankruptcy.

GM has agreed to underwrite a $2 billion loan and up to $825 million in a second loan if it cannot be placed with investors.

Jack Butler, a lawyer for Delphi, told U.S. Bankruptcy Judge Robert Drain that there is nothing in the agreement with the planned investment group, led by Appaloosa Management LP, that bars the stepped-up role of GM in the financing.

The consortium is trying to argue that it should have veto power over every item related to financing arrangements, Butler said.

"The arguments just frankly make no sense," he said.

Butler said the company needed the GM financing to be approved to provide comfort to the market "that our launch of exit financing next week won't be futile."

Getting the financing was integral to Delphi obtaining its needed financing amid the backdrop of difficult credit market conditions, he said.

Judge Drain said the issue for the court would be what were the specific provisions outlined in the investment contract.

"If the investors have a contractual right, they are entitled to rely on it," the judge said. He did not indicate when he would rule on the matter.

Thomas Lauria, a lawyer for hedge fund Appaloosa Management, said at the hearing that the investment agreement with Delphi does not allow for the GM loan arrangement and it would harm the investors and the company.

"(It) results in GM again having undue influence over debtors' affairs," he told the judge.

Appaloosa Management, the lead investor behind a planned equity infusion of $2.55 billion in the company, has agreed to extend a deadline to terminate their deal until April 5. Other investors include Harbinger Capital, Merrill Lynch & Co. MER.N, UBS AG, Pardus Capital, and Goldman Sachs Group Inc. (GS.N).

Five of the six proposed equity investors have objected to GM's stepped-up role. Goldman Sachs did not participate in the objection.

Troy, Michigan-based Delphi, which was spun off by GM in 1999, filed for bankruptcy protection in October 2005.

(Reporting by Martha Graybow, writing by Nick Zieminski)