Delphi expects Cerberus to quit investor group

By David Bailey

CHICAGO (Reuters) - Delphi Corp. (DPHIQ.PK) said on Thursday it expects Cerberus Capital Management LP to withdraw as co-leader of a proposed $3.4 billion investment to support the auto-parts maker's emergence from bankruptcy.

Delphi, which filed for bankruptcy protection in October 2005, said there were differences of opinion over the future value of the reorganized company.

Cerberus declined to comment on Delphi's announcement. Delphi also said the private equity firm may still participate in its exit financing plans.

Delphi said it would talk to creditors and other members of the investor group, and may consider adding investors. Highland Capital Management LP, Delphi's second-largest shareholder, also expressed renewed interest in the company.

The investment plan, approved in January by the U.S. Bankruptcy Court, remains contingent upon Delphi reaching agreements with its unions and former parent General Motors Corp. (GM.N) that are satisfactory to investors.

Expectations that Cerberus will pull back from the Delphi reorganization underscored the difficulty in negotiating new labor contracts between the bankrupt supplier and the United Auto Workers union, Argus Research analyst Kevin Tynan said.

"For them to take money off the table is a significant indication of where things are at right now," Tynan said.

The other planned investors, including co-leader Appaloosa Management LP, are expected to continue as investors, Delphi said. Cerberus had pledged to invest up to $1.7 billion, with the other half coming from the rest of the group.

Delphi's bankruptcy filing in 2005 was partly due to production cuts at U.S. automakers and high wage and benefit costs inherited in its 1999 spinoff from GM.

Delphi said it was meeting with its creditors and others to discuss the revisions and that it expected the creditors committee to consider an increase in the stock portion of the recovery it was seeking for general unsecured creditors.

EMERGENCE IN 2007 STILL POSSIBLE

Delphi had envisioned emerging from bankruptcy within 18 months of the filing, but that target has passed.

On Thursday, Delphi said that anticipated changes in investors were not expected to stop it from filing a reorganization plan by July 31, or exiting bankruptcy by the end of 2007.

Delphi also said that while it expected to alter the proposal approved by the court in January, no parties to the agreement have filed formal notice to withdraw. The agreements remain in effect until they are changed or terminated.

It remained unclear what impact the expected departure of Cerberus from the investor group might have on Delphi's negotiations with the UAW and other unions. A UAW representative could not be reached for comment.