A US bankruptcy court has refused Delphi permission to compensate private equity company Platinum Equity by up to $30m in expenses if its bid for the auto industry supplier is beaten.
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Judge Robert Drain said at a hearing in Manhattan $30m was “not reasonable or appropriate,” but added his ruling would not prevent Platinum from seeking another kind of reimbursement later, Reuters reported.
Delphi, a General Motors 1999 spin-off which filed for bankruptcy in 2005, last month said it had agreed to sell most of its global operations to Platinum Equity under a plan that, with GM participation, would allow Delphi finally to emerge from Chapter 11 protection.
But Judge Drain in early June ordered Delphi to allow other bidders to compete with Platinum’s offer at an auction to be held late this month.
The offer included a $3.6bn financing package for Delphi that would come from various sources including GM and Platinum, people familiar with the matter told Reuters.
According to the report, Delphi argued in court that the new auction process prompted a need to offer the expense reimbursement to compensate Platinum for its efforts if it does not make the winning bid.
Delphi’s debtor-in-possession lenders, who have provided the company with billions of dollars in financing and have considered bidding for it, opposed the request, however.
Reuters noted that, in a US bankruptcy auction, break up fees and expense reimbursements are often given to the lead bidder for the distressed company to help secure the status of the offer prior to the auction, but Delphi’s DIP lenders said that was not needed since Platinum had already signed an agreement without such bid protections.
The DIP lenders also argued that the $30m sought stemmed from work done as much as three years earlier, though the Platinum offer for Delphi had been negotiated in just the last several months.
Judge Drain also said he believed that Delphi would need the consent of its DIP lenders to make such a payout to Platinum, the report said.
Platinum said in a statement it felt Judge Drain had urged all the parties in the case to go back to the drawing board and work out some agreement on breakup fees and expense reimbursements.
“From our perspective, such overbid protection is an important but ultimately secondary consideration,” Platinum spokesman Mark Barnhill said in the statement.
“Our primary focus is on completing this process with the highest and best offer. We are the only bidder with a comprehensive, credible and well-capitalised plan to bring Delphi out of bankruptcy as a viable business going forward.”
