Delphi Reaches Settlement With GM

[Mr. Wyndham]

By TERRY KOSDROSKY and MARIE BEAUDETTE
September 7, 2007 7:03 a.m.

DETROIT -- Automotive-parts supplier Delphi Corp. said Thursday it reached a definitive agreement with former parent General Motors Corp. and filed its reorganization plan and disclosure statement, moves aimed at exiting bankruptcy protection by the end of the year.

The deal settles issues with GM over supply, pricing, post-retirement liabilities for workers and plant closings and sales. Delphi said it will seek financing of about $7 billion to pay Chapter 11 claims and make pension contributions. It hopes to close the exit financing deal early in the fourth quarter.

In addition to paving the way for Delphi's emergence from two years of bankruptcy protection, the agreement with GM ends a period of doubt about the auto maker's exposure to problems at Delphi. At various points since Delphi filed Chapter 11 in October 2005, the threat has loomed of a Delphi strike that could paralyze GM production. Investors have also fretted about the potential financial obligation GM had to Delphi.
Delphi has reached new contracts with all of its labor unions, and GM spokeswoman Rene Rashid-Merem said Thursday's developments are "significant steps" and "further evidence of the progress being made" in Delphi's goal to emerge from Chapter 11 a more competitive company.

She said GM's contingent exposure to Delphi is about $7 billion, as stated before, and that the auto maker will provide Delphi annual labor-related payments between $300 million and $400 million and annual transitional payments of approximately $100 million. GM outlined those terms in its second-quarter filing with the Securities and Exchange Commission.

GM will take responsibility for a good chunk of Delphi's post-retirement health benefits. GM also will cover labor costs in excess of $26 an hour at certain plants.

But the auto maker expects that to be offset by the eventual elimination of a $2 billion "cost penalty" it pays for some Delphi parts as it moves some work to other suppliers and pays more competitive prices to Delphi. Delphi's sales to GM in 2007 are expected to be $10.5 billion, but Delphi expects that to drop to $5.4 billion in 2009, according to court papers.

As part of the agreement, GM will receive $2.7 billion in cash to satisfy certain claims against the supplier. Delphi also will transfer about $1.5 billion of its net hourly pension obligations to GM's hourly pension plan. In return, GM will receive a note for $1.5 billion.

Delphi also said Thursday that it will freeze its hourly and salaried pension plans and replace them with "contemporary plans," which will be defined contribution plans in most cases.

Delphi Chief Executive and President Rodney O'Neal said the company's goal was to reach consensual deals with its unions and GM and preserve the pension plan, and Delphi met those objectives.

"We always said we did not want to litigate this to a conclusion and that we wanted a consensual deal," O'Neal said in an interview. "There will be assistance provided by GM to help us either exit businesses, sell businesses and also to maintain some of the keep sites in the U.S."

Since filing for Chapter 11 protection, Delphi has undergone a sweeping overhaul of its business. The former parts-making division of GM has seen thousands of hourly employees take buyout or early retirement deals and reached concessionary contracts with its unions.

Delphi will focus on six key business lines and keep eight U.S. union plants open. It is selling or closing 25 sites in North America. The parts supplier also said it has started an overhead cost savings plan, which should realize savings of about $450 million a year. The company is in the midst of cutting 8,500 salaried positions globally.

Delphi expects to lose money through 2008 and turn a profit in 2009. Delphi projects a $1.67 billion loss in 2007, a $1.3 billion loss in 2008 and net income of $128 million in 2009, according to court papers. Delphi said terms of the previously announced $2.55 billion equity investment agreement with a group of investors led by Appaloosa Management LP are unchanged.

Delphi shareholders will receive some new shares in a re-organized Delphi, have right to buy new stock at a discount and be issued warrants to buy more shares. Unsecured creditors will be paid in full with a mixture of about 20% of cash and 80% stock, which is expected to have a deemed value of $45 per share.

Delphi's financial adviser, investment bank Rothschild Inc., has pegged the company's post-bankruptcy enterprise value at between $11.4 billion and $14.4 billion, with a midpoint of about $12.9 billion. The bankruptcy-reorganization plan is based on an enterprise value of $12.8 billion, according to court papers. A hearing on the disclosure statement is scheduled for Oct. 3.

If the plan is approved, Delphi's new board would be governed by a new nine-member board of directors, including an executive chairman and the current chief executive. A five-member selection committee will search for an executive chairman to replace current Chairman Robert "Steve" Miller, who is expected to leave Delphi once it emerges from Chapter 11. O'Neal would remain chief executive.

not-so-great ending to a worse situation I guess...out of the fire, and back into the frying pan.

[TAG UR IT]

At least they will still be around. I feel for those families of the 25 plants they are closing. I'd hate to put 20 years into a place only to get canned. Wait...that happened to my mom. Pricks.......