Industry News
Delphi announces reorganisation plan following definitive settlement with GM
7th September 2007
The largest U.S. Tier 1 automotive supplier, Delphi Corp., in Chapter 11 bankruptcy protection, announced this morning that it has signed definitive settlement and restructuring agreements with General Motors and will file its proposed Joint Plan of Reorganization to emerge from Chapter 11 bankruptcy protection and related Disclosure Statement with the U.S. Bankruptcy Court for the Southern District of New York later today.
Delphi's settlement with GM resolves all outstanding issues between the two companies including litigation commenced in March 2006, by Delphi, to terminate certain supply agreements with GM; all potential claims and disputes with GM arising out of the separation of Delphi from GM in 1999; certain post-separation claims and disputes between Delphi and GM; the proofs of claim filed by GM against Delphi in Delphi's Chapter 11 cases; GM's treatment under Delphi's proposed plan of reorganization; and various other legacy and business matters between the companies.
The proposed plan also outlines Delphi’s transformation in five areas:
- Agreements reached with all principal U.S. labor unions which create a competitive arena in which to conduct its business;
- Agreements with General Motors outlining its financial support for certain legacy and labor costs and certain future business commitments to Delphi;
- Delphi’s future product portfolio and manufacturing footprint;
- Delphi’s planned transformation of its salaried workforce and progress in reducing SG&A to support its realigned portfolio; and
- Delphi’s plans to fund its U.S. defined benefit pension schemes.
GM will receive a $2.7 billion cash distribution in satisfaction of certain of its claims against Delphi. The Plan or reorganization features rights offerings which will allow Delphi's common stockholders to purchase, (i) through the exercise of transferable rights, about 28% of the common stock of the reorganized Delphi at a discount to the negotiated plan value, and (ii) through the exercise of non-transferable rights, up to $572 million worth of shares at the negotiated plan enterprise value price of $45.00 per share.
Delphi previously negotiated and signed Memoranda of Understanding with each of its six U.S. unions and GM covering site plans, workforce transition as well as other comprehensive transformational issues. Delphi will continue to own and operate four UAW-represented sites, three IUE-CWA-represented sites and one USW-represented site. Twenty-five North American sites will be sold or closed.
GM will make significant contributions to cover costs associated with post-retirement benefits for some of the company’s active and retired hourly-paid employees, including health care and life insurance, and some of the assets and liabilities of its hourly pension plan will be transferred to GM’s. GM will receive an interest bearing note from Delphi for $1.5 billion, to be paid within 10 days of its issuance.
GM will make significant, ongoing contributions to Delphi and ‘Reorganized Delphi’ to reimburse the company for labour costs in excess of $26 per hour at specified manufacturing facilities; GM and Delphi have agreed to certain terms and conditions concerning the sale of certain of its non-core businesses; GM and Delphi have agreed to certain additional terms and conditions if certain of its businesses and facilities are not sold or wound down by certain future dates; and GM and Delphi have agreed to the treatment of specified contracts between arising from Delphi's separation from GM and others.
Delphi is henceforth to focus on the following core strategic product lines:
- Controls & Security (Body Security, Mechatronics, and Displays);
- Electrical/Electronic Architecture (Electrical/Electronic Distribution Systems, - Connection Systems, and Electrical Centers);
- Entertainment & Communications (Audio, Navigation, and Telematics);
- Powertrain (Diesel and Gas Engine Management Systems);
- Safety (Occupant Protection and Safety Electronics); and
- Thermal (Climate Control & Powertrain Cooling).
Delphi says it has made progress in identifying and implementing the sale (or receiving Bankruptcy Court approval to sell) or wind-down of facilities and business lines that do not fall within these areas, including:
- The sale of the brake hose manufacturing business in Dayton, Ohio to Harco Manufacturing Group, LLC.
- The settlement of a social plan in the "Concurso," or Spanish insolvency proceeding, of Delphi Automotive Systems Espana S.L.;
- The sale of the brake components business, including a manufacturing plant in Saltillo, Mexico, to Robert Bosch LLC and its affiliate Frenados Mexicanos, S.A. de C.V.;
- The sale of substantially all of the assets of MobileAria, Inc. to Wireless Matrix USA, Inc.;
- The sale of a New Brunswick, N.J., battery manufacturing facility to Johnson Controls, Inc.;
- The wind-down of a Delphi Medical Texas facility in Houston, Texas;
- The consolidation of fuel injector production in Rochester, New York during 2006-2007, which allowed the Debtors to wind down a manufacturing facility in Coopersville, Michigan;
- The sale of the catalyst business to the Belgian Umicore Group.
The company has also been in discussions regarding the sale of its Steering, Bearings and Interior and Closures businesses. The company will continue with its stated plans to sell or wind-down additional non-core product lines and manufacturing sites into 2008.
As part of its organizational restructuring, Delphi previously announced that it expects to reduce its global salaried workforce by as many as 8,500 employees. In addition, Delphi has commenced the implemention of a sales and general administrative cost savings plan, which it says should realize savings of approximately $450 million per year (in addition to savings realized from competitive measures planned for its core businesses and the disposition of non-core assets).
As part of its equity investment agreement with its private equity investors, Delphi is also implementing a competitively-benchmarked executive compensation program for its continuing salaried executives.
On 18th July this year Delphi announced that it had accepted a proposal for an Equity Purchase and Commitment Agreement with affiliates of lead investor Appaloosa Management L.P.; Harbinger Capital Partners Master Fund I, Ltd.; Merrill Lynch, Pierce, Fenner & Smith Inc.; UBS Securities LLC; Goldman Sachs & Co.; and Pardus Capital Management, L.P. (collectively the “Plan Investors”) to invest up to $2.55 billion in preferred and common equity in reorganized Delphi to support the company’s transformation plan and its plan of reorganization.
These Plan Investors will buy $800 million of convertible preferred stock and approximately $175 million of common stock in the reorganized company. Additionally, the Plan Investors will commit to purchasing any unsubscribed shares of common stock in connection with an approximately $1.6 billion rights offering that will be made available to existing common stockholders, subject to approval of the Bankruptcy Court and satisfaction of other terms and conditions.
While today's filing of the Plan and related Disclosure Statement was made by Delphi after consultation with the Plan Investors, the Plan Investors have not approved the Plan or related Disclosure Statement and today's filing does not waive or modify any of Delphi's or the Plan Investors' rights and/or obligations under the Investment Agreement.
In addition to the equity funds to be raised from the Plan Investors and the proposed Rights Offerings, the company is in discussions with lenders of syndicated debt and corporate high-yield debt to raise an amount sufficient to repay the DIP facilities and conduct its post-reorganization operations. Delphi’s emergence timetable calls for the company to obtain exit financing commitments early in the fourth quarter of 2007.
Under the terms of the proposed plan, the reorganized Delphi would be governed by a new nine-member Board of Directors including an Executive Chairman and the company’s current CEO. Subject to certain conditions, at least six of the nine directors would be required to be independent of the reorganized Delphi under applicable exchange rules and independent of the Plan Investors.
A five-member selection committee has been formed to appoint the company's post-emergence Executive Chairman, to interview and approve all directors nominated for the Board, and make the initial appointment of directors to all Board committees.
Delphi's Chapter 11 cases were filed on October 8, 2005. The company’s European operations were excluded from them and remain solvent.
News Headlines
