Several lenders that provided bankruptcy funding to auto parts supplier Delphi Corp. are seeking to make their own competing offer for the company, their lawyers told a U.S. bankruptcy court on Wednesday.
The lenders, which provided senior debtor-in-possession financing to Delphi, said they would like access to certain information from the company so that they can submit a “credit bid” for the company to compete against an offer from private equity firm
“We are prepared to exercise our credit bid right,” Glenn Siegel, a lawyer representing Delphi lenders Kensington International Ltd, Manchester Securities Corp, and Springfield Associates, told the court, suggesting Delphi’s sale should be conducted in a manner more like a bankruptcy auction, which would be more transparent.
Delphi, which was spun off from General Motors Corp. in 1999 and filed for bankruptcy in 2005, said last week it reached a deal to sell most of its global operations to private equity firm Platinum Equity, allowing the car parts supplier to emerge from Chapter 11 bankruptcy protection.
In bankruptcy, secured lenders can make a “credit bid” for a company up to the full amount of their claim and cancel the debt, as opposed to making a straight cash offer.
In court on Wednesday, U.S. bankruptcy Judge Robert Drain was considering Delphi’s request to go forward with its plan to sell to Platinum Equity, which led to the objections from several groups of Delphi’s lenders.
John Butler, a lawyer for Delphi, however, rejected the lenders’ claims that Delphi had not been transparent about the sale, saying the lenders could have made this offer at any earlier date and specifically said Delphi should plan to go forward without any additional capital from them.
“Despite all of the access the DIP lenders have had to information in the last six months … the only feasible, fully funded transaction we have to move forward with is the one before us,” Butler told the court.
Drain said he was concerned about provisions in Delphi’s deal with Platinum Equity that could prevent Delphi from working with other parties that want to make competing offers.
“Why are we not permitting a process that’s one where there can be a higher bidder?” Drain asked Butler, saying litigation could arise from preventing other bidders’ offers and that he was not sure why Platinum should get these special protections.
“As far as I’m concerned they (Platinum) are just guys in suits. Why can’t other guys in suits pay more?” Drain said.
Earlier on Wednesday, Drain gave Delphi preliminary approval to access $250 million in funding from GM that is expected to support Delphi until it can emerge from bankruptcy.
However, the judge said he may want to clarify that decision, depending on the outcome of further proceedings before the court on Wednesday.
“For the first time in 14 months the debtors (Delphi) believe they are here with a fully funded, feasible set of emergence transactions that will allow this company to emerge and provide a resolution to these Chapter 11 cases,” Butler told the court.
Delphi remains one of GM’s key suppliers and GM has taken more than $11 billion of charges to help the company’s reorganization along. GM, which has also filed for bankruptcy, received court approval at a hearing last week to continue providing support to its suppliers.
The case is In re: Delphi Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 05-44481.
Reporting by Emily Chasan