Judge says GM can offer loan to Delphi through subsidiary

Judge says GM can offer loan to Delphi through subsidiary

Delphi still will be able to launch its financing package next week.

NEW YORK (AP) — Auto parts supplier Delphi Corp. cannot accept more than $2 billion in loans directly from General Motors Corp., a bankruptcy judge ruled Friday, but said the company could still get help from its former parent if the money came through an intermediary.

U.S. Bankruptcy Judge Robert Drain denied Delphi’s official request for GM’s participation. Still, his ruling allows the company to relaunch its $6.1 billion exit financing package next week.

That is good news for Delphi, which is facing an April 4 deadline to get financing and close a multimillion-dollar investment deal with a group of hedge funds and investment banks led by Appaloosa Management LP that would take stock in the reorganized company.

Drain said nothing in that contract stopped GM from offering the loans through a subsidiary since the deal between Delphi and the investors merely said the GM corporation could not offer more than $750 million in financing.

GM had offered to give Delphi a $2 billion loan and take any ubsubscribed portion of another $825 million loan. Delphi lawyer Jack Butler said the loans were the lynchpin to get the total exit financing that the company needs to leave court protection.

Five proposed investors led by Appaloosa objected to the loans, saying they were concerned about GM expanding its influence over Delphi, its parts subsidiary until 1999 and still its biggest supplier. The loans would “adversely affect the company and the investors by materially increasing and concentrating GM’s ongoing influence and control,” they said.

Appaloosa, as the company’s “presumptive” biggest shareholder after bankruptcy, could see its power diminished if GM were to exert its considerable influence.

Drain raised the possibility that Appaloosa’s arguments indicate it wants out of the deal.

“If we were going to walk away, we would’ve walked away,” said Thomas Lauria, a lawyer for Appaloosa.

The investors have proposed investing as much as $2.55 billion in return for equity in the reorganized company.

Appaloosa was joined by four other equity investors in its objection: Harbinger Capital Partners Master Fund I Ltd.; Merrill Lynch, Pierce, Fenner Smith Inc.; UBS Securities LLC, and Pardus Capital Management LP. Goldman Sachs Group Inc. is a sixth member of the investor group but did not object.

The exit financing package also includes a $1.6 billion asset-backed revolving credit facility and at least $1.7 billion of another loan.

Delphi’s efforts to get loans have been hampered by a part of the deal with Appaloosa that limits the amount of interest income Delphi can pay in 2008 to $585 million. GM had offered to take a variable interest rate to help Delphi meet the requirement.

With the judge’s ruling, Butler said Delphi planned to file a registration statement next week with the Securities and Exchange Commission, begin its rights offering for new shares in the company and relaunch the syndication of its exit financing package.