DETROIT U.S. auto parts maker Delphi ended four years in bankruptcy on Tuesday, emerging from Chapter 11 as a private company and removing a major uncertainty for former parent General Motors Co GM.UL.
Delphi, which filed for bankruptcy on October 8, 2005, cut thousands of workers, divested several businesses and agreed to sell its steering systems operations and four plants back to GM for the reorganization.
The parts maker's emergence from bankruptcy was executed through a sale of most of its assets to Delphi Holdings LLP, which is led by senior creditors Elliott Management Corp and Silver Point Capital LP.
Rodney O'Neal remains chief executive of Delphi and the leadership remains in place, Delphi said in a statement.
The group acquiring the now much smaller Delphi has agreed to forgive nearly $3.5 billion of bankruptcy loans it bought from previous bankruptcy lenders, and will invest $900 million in capital in the company.
Other parts of the company will be sold back to GM and the rest will be liquidated under the plan approved by a U.S. Bankruptcy Court judge in July. The transaction has pending regulatory approvals in Russia and South Africa.
O'Neal said in a statement that post-bankruptcy Delphi would be "a more agile, nimble and resilient company."
"We expect that the industry and the competitive environment will continue to be demanding, but the restructuring we have already completed creates a strong platform and we expect to capitalize on that," O'Neal said.
GM said it would create two subsidiaries for the reacquired Delphi businesses, one for the steering business and a separate one for the other four plants.
"We're pleased to see a final resolution to the bankruptcy and wish the newly emerged Delphi success," GM Chief Executive Fritz Henderson said in a statement.
Delphi, which once made a very broad array of auto parts, will narrow it to electronic and safety components; powertrain; thermal; electrical and electronic systems; automaker services; and parts for the independent replacement market.
BANKRUPTCY SHOCKED AUTO INDUSTRY
The largest U.S. auto parts supplier when it filed for bankruptcy, 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.
Delphi stunned the U.S. auto industry by filing for bankruptcy after negotiations broke down with GM and the United Auto Workers union over supply and labor agreements. It remains the largest bankruptcy for a U.S. auto parts supplier.
It took the government-managed bankruptcies of Chrysler and GM earlier in 2009 to surpass the Delphi bankruptcy in size and complexity for the auto industry. The Delphi exit strategy is similar to that used in the GM and Chrysler restructurings.
Delphi filed for court protection even as U.S. auto industry sales reached a peak of nearly 17 million vehicles in 2005. The market has continued to decline since, with 2009 sales forecast at about 10 million units.
Delphi's emergence follows a series of failed attempts to exit bankruptcy, and should resolve a major cash drain for GM.
Investors led by Appaloosa Management backed out of a plan that would have provided $2.55 billion of financing in April 2008, forcing Delphi to come up with a new plan.
The parts maker, once the biggest in North America, now ranks third behind Magna International MGa.TO and Johnson Controls Inc (JCI.N).
The auto parts sector stayed under pressure after Delphi's bankruptcy. The credit market collapse in September 2008 and resulting drop in U.S. auto sales and production added to the squeeze on supplier finances and led to more bankruptcies.
Under the deal approved in July, GM, which has already taken over $11 billion in charges for Delphi's restructuring, will assume $1.1 billion in Delphi's obligations and waive $2.15 billion in its own claims against the supplier.
GM also plans to invest $1.75 billion and to provide Delphi with loans. A complete failure of Delphi could have forced a near total shutdown of GM production in short order, choking off revenue as the automaker relaunches its own company.
Delphi reached agreements with its unions and resolved pension funding during the bankruptcy as well.
The case is In re Delphi Corp, U.S. Bankruptcy Court, Southern District of New York, No. 05-44481.
(Reporting by Soyoung Kim and David Bailey; Editing by Gary Hill)