Auto parts maker seeking extension of bankruptcy protection

Delphi says it’s being
cautious in seeking a
two-month extension.

NEW YORK (AP) — Delphi asked for an extension of bankruptcy protection Friday as the auto parts company struggles to find loans in an inhospitable credit market.

Delphi, seeking $6.1 billion in loans as credit markets seize up, has asked for a two-month extension.

It said earlier that it planned to emerge from Chapter 11 court protection at the end of March.

A majority of the company’s creditors have approved its proposed reorganization plan, but until the loans are secured, the company is locked in bankruptcy court. Delphi spokesman Lindsey Williams said the company asked for the extension “out of an abundance of caution.”

The reorganization plan is made of a number of separate yet dependent deals, including an equity investment worth as much as $2.55 billion from a group led by the Appaloosa Management LP hedge fund and a settlement agreement with former parent General Motors Corp.

Troy, Mich.-based Delphi was GM’s parts subsidiary until it was spun off in 1999, and their labor obligations have been intertwined.

GM, which depends on parts from Delphi, may need to up its contribution to ensure Delphi’s survival.

Adding to Delphi’s problems is a portion of the Appaloosa deal that limits that amount of interest income Delphi can pay on the loans, making it less attractive for lenders to sign up. What’s more, the company’s two lead loan arrangers are not required to take any unsubscribed loans.

If the company does not secure the $6.1 billion in exit financing by the end of March, Appaloosa could abandon the investment deal and put into jeopardy Delphi’s emergence from Chapter 11 protection.

Appaloosa is joined by five other equity investors: Harbinger Capital Partners Master Fund I Ltd.; Merrill Lynch, Pierce, Fenner & Smith Inc.; UBS Securities LLC; Pardus Capital Management LP, and Goldman Sachs Group Inc.

The company has operated under court protection since October 2005. This is the sixth time the company has asked for an extension in the case.

Each month in bankruptcy, the company spends more than $12 million in fees for lawyers and financial advisers.