Hedge fund Appaloosa Management and other investors have settled a lawsuit with Delphi stemming from a failed and contentious plan to take the auto parts maker out of bankruptcy in 2008, sources have said.

Financial terms were not immediately available, Reuters said. The deal addresses one of the remaining issues that had followed Delphi through its emergence from bankruptcy earlier this month, nearly four years after it filed for Chapter 11 protection.

The sources told the news agency the settlement was completed in the past week and involved a payment from the investor group, which had also included Merrill Lynch, now part of Bank of America, Goldman Sachs Group, UBS and hedge funds Harbinger Capital and Pardus Capital.

Delphi had sued the investor group after it backed out of a US$2.5bn financing deal that would have brought Delphi out of bankruptcy.

Delphi, now privately held, and Appaloosa declined to comment. Spokesmen for Merrill Lynch, UBS and Goldman Sachs all declined to comment. Harbinger and Pardus were not immediately available for comment.

Reuters said the Appaloosa-led group backed out of the rescue plan in April 2008 as Delphi's condition worsened due to a sharp downturn in US auto sales and more risk-averse financial markets.

The investor group was to have provided part of the total $6.1bn exit funding and former Delphi parent General Motors was to have provided up to $2.825bn of loans.

Before bailing out at the last minute, Delphi and the Appaloosa group had been sparring in court, with the investors saying that the plan could give the automaker too much influence over Delphi.

In July, a bankruptcy court approved the sale of Delphi to its debtor-in-possession lenders, including Elliott Management and Silver Point Capital, and GM, the report added.