Delphic dealings

10 June 2009 By Richard Beales Follow @richardbeales1

This time it s the planned emergence of US parts maker Delphi from a 3½year bankruptcy. A deal brokered between former parent GM, the president’s auto task force and a private equity group had lenders crying foul. The court rightly asked for a more open process.

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Delphi said on June 1 (the day General Motors filed for bankruptcy) that it planned to emerge from bankruptcy – for which it filed in October 2005 – through a sale of much of its US and nonUS business to Parnassus Holdings II, LLC, an affiliate of Platinum Equity, with the assistance of GM funding.

In a regulatory filing on Friday, June 5, GM gave more details of the deal, including the respective cash commitments of GM and Platinum.

In a court filing dated June 9, lawyers for Delphi's bankruptcy lenders filed a response and partial objection to Delphi's new plan, saying it constitute[d] an unprecedented attempt by a debtor to strip away the unassailable superpriority liens of secured postpetition debtor in possession lenders. Creditors would have received modest interests in Parnassus and in some cases some additional possible payouts.

This brazen reallocation is fundamentally flawed, the filing continued. The proposed transaction was secretly negotiated – while a courtordered mediation was in progress – without anything remotely resembling a proper M&A process – and in violation of the DIP lenders' rights.

On June 10, Judge Robert Drain ruled that the car parts maker should conduct an auction and provide more details about its proposed sale, according to Dow Jones.

As far as I'm concerned, they're just guys in suits, the judge said, talking about Platinum, according to the news service. Why can't other guys in suits pay more?

Delphi's lawyer told Dow Jones that the deal was very complex and that another bidder would have to be acceptable to GM. Platinum told the Wall Street Journal it was uniquely equipped to help Delphi.

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