Delphi files reorganization plan, settles with GM

CHICAGO, Sept 6 (Reuters) - Auto parts maker Delphi Corp filed a reorganization plan on Thursday that includes a definitive settlement with former parent General Motors Corp and a path to exiting bankruptcy by the end of the year.

The plan includes $2.55 billion in equity investment from a group led by Appaloosa Management LP and lays out expected recoveries for general unsecured creditors and offers current shareholders the right to buy stock in the reorganized Delphi.

The plan requires approval of Delphi's creditors and the investor group led by Appaloosa. The U.S. Bankruptcy Court also must approve a disclosure statement intended to explain the plan in plain language before Delphi can solicit its approval.

Delphi and other U.S. auto parts makers have been pressured in recent years by the declining market share in North America of major U.S.-based customers. Several other parts makers have also filed for bankruptcy protection in the past three years.

Delphi said it needs about $7 billion of exit financing and has started discussions with several top lenders. It expects to obtain commitments by early in the fourth quarter and believes the reorganized company will be attractive to investors.

The company expects to seek approval of the disclosure statement Oct. 3 from Judge Robert Drain of the U.S. Bankruptcy Court for the Southern District of New York. A confirmation hearing could be held in mid November.

Delphi filed for bankruptcy in October 2005 and has announced plans to slash thousands of U.S. hourly workers and up to 8,500 salaried workers worldwide. The company is also exiting several business lines.

Troy, Michigan-based Delphi negotiated new contracts with a half-dozen unions in the United States for the reorganization. It plans to retain eight union plants in the United States and expects to close or sell 25 North American sites overall.

The company remains committed to divesting the steering, bearings and interiors businesses by the end of 2008 to focus on vehicle electronics, navigation, powertrains, air conditioning, auto safety and other products.

Chief Executive Rodney O'Neal said Delphi could complete the sale of the steering unit in the first quarter of 2008. The business had sales of $2.6 billion in 2006.

Delphi expects net sales of nearly $26 billion in 2007, and projects 2008 consolidated sales dropping to $20.05 billion as it exits some business. It expects net sales to rise to $23.66 billion in 2011 and projects a full year profit in 2009.

Delphi's ownership will be split between the Appaloosa investors, creditors and current shareholders. Appaloosa and the other plan investors would own 20 percent to 50 percent of Delphi depending on how much current shareholders participate in the equity rights offering.

The plan resolves claims either through 100 percent recoveries or compromises, such as the settlement of securities class-action lawsuits Delphi announced last week and the settlement with GM announced on Thursday.

The estimated total enterprise value of the reorganized Delphi was projected at $11.4 billion to $14.4 billion.

GM GAVE AND GOT

The settlement with GM, which spun Delphi off in 1999, addresses pension and health-care benefits obligations, other labor matters, parts pricing and supply agreements.

As previously disclosed, Delphi will pay GM $2.7 billion to settle GM claims. GM already agreed to help fund the thousands of early retirements and buyouts for union workers in the United States.

The plan gives shareholders a small recovery mainly because of large contributions to the reorganization by GM in taking on health-care costs and other obligations, Delphi said.

Shareholders would receive a pro rata distribution of 1.476 million shares of stock in the new company, transferable rights to acquire 40.8 million shares at $38.56, nontransferable rights to buy $572 million of stock at $45 per share and five-year warrants to buy additional stock at $45 per share.

Holders of general unsecured claims would receive 20 percent in cash and 80 percent from stock in the reorganized Delphi valued at $45 per share. Holders of subordinated notes would receive their entire claims in stock.

The expected recovery for Delphi shareholders stands in contrast to the results in other bankruptcies in the sector.

Shareholders received nothing from Collins & Aikman's liquidation or Tower Automotive's sale to Cerberus Capital Management [CBS.UL], which recently bought Chrysler LLC.

Shareholders also are expected to receive nothing in the pending Dura Automotive Systems Inc and Dana Corp bankruptcy cases.

The Appaloosa-led investor group includes Harbinger Capital Partners, Merrill Lynch, Pierce, Fenner & Smith Inc, UBS Securities, Goldman Sachs and Pardus Capital Management.

The group has agreed to buy $800 million of convertible preferred stock and $175 million of common stock in the reorganized Delphi as well as buy any shares from the $1.575 billion rights offering to common stockholders.