It is looking increasingly likely General Motors will have to help former subsidiary and largest parts supplier, Delphi, after the parts maker’s path to exit bankruptcy was blocked on Friday when a private equity fund ended a deal for a US$2.55bn cash injection on Friday.
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And all this on top of slumping US sales and a strike at supplier American Axle and Manufacturing (AAM) that has shut down 30 GM factories, the Associated Press (AP) noted.
The news agency said the Appaloosa Management-led investment was an essential pillar in Delphi’s reorganisation following US ‘Chapter 11’ bankruptcy, which has been complicated by a tight credit market.
The loss of the deal puts Delphi’s plan to exit bankruptcy at risk and raises the issue of whether General Motors would be forced to offer even more support than it is already giving, AP added.
“I would not be surprised to see additional forms of financial support from GM,” Fitch Ratings analyst Mark Oline told the Associated Press. “It’s been never-ending since the initial filing.”
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By GlobalDataStandard & Poor’s analyst Marc Eiger reportedly told investors that the sooner Delphi emerges from bankruptcy, the better off GM will be. He noted that GM recently increased the amount of loan money it offered to Delphi, and it “may need to provide more cash to help Delphi emerge.”
Appaloosa told AP it was still negotiating to invest in Delphi despite its refusal to do so under the terms of the existing agreement.
GM spokeswoman Renee Rashid-Merem told the news agency the automaker was disappointed Appaloosa had withdrawn. “There has been a tremendous amount of effort and progress made to establish the foundation that would enable Delphi to emerge from Chapter 11,” she said in a statement. “GM will continue to work with the involved parties to facilitate Delphi’s efforts to emerge from bankruptcy.”
Appaloosa’s announcement came as Delphi faced a Friday deadline to raise $6.1bn in loans to help it out of bankruptcy. Delphi followed Appaloosa’s statement with its own, saying it had raised the needed loan money and was ready to do the deal but that Appaloosa had backed down, AP said.
“We are extremely disappointed that our plan investors have taken the position that they are not obligated to fund their planned investment commitments to Delphi and instead have chosen to walk away from the company and its stakeholders,” Delphi’s restructuring chief, John Sheehan, said in a statement.
“We are prepared to pursue actions that are in the best interests of Delphi and its stakeholders.”
But Delphi, which has been in bankruptcy since October 2005, offered no specifics on what those actions may be, the Associated Press said.
Appaloosa reportedly said Delphi has breached an agreement it had with the investor group but said it was still talking to Delphi and could potentially do a deal “in a capacity different than currently envisioned by the agreement.”
AP added that, under the restructuring plan approved by the court and creditors, GM can offer up to $750m in loans. A judge recently ruled that a GM affiliate – but not GM itself – could offer two other loans, one of $2bn and a second loan worth as much as $825m.
