"We know the business very well and understand its potential."
After spending nearly four years mired in bankruptcy court, Delphi Corporation may finally emerge from behind Chapter 11 protection as an asset of a Los Angeles-based private equity firm rather than under its own control.
Delphi, via a transaction with Parnassus Holdings II, LLC, an affiliate of Platinum Equity, and with the support of GM Components Holdings LLC, an affiliate of General Motors Corporation, has put together a new emergence plan that could stave off liquidation if it works. The President’s Auto Task Force worked behind the scenes to organize the deal.
Platinum is not new to Delphi. Platinum had bid successfully for Delphi’s Steering Gear plant last year but withdrew its bid last winter after the credit crisis made it difficult to obtain financing, but had indicated it was prepared to make another bid when the conditions were right.
This time, however, instead of taking the steering gear business, Platinum will take on all of Delphi’s remaining business.
The most significant development is Platinum will now get control of Delphi’s overseas business, which had not been part of the U.S. Bankruptcy Court proceedings. Parnassus will operate Delphi’s U.S. and non-U.S. businesses going forward with emergence capital and capital commitments of approximately $3.6 billion and without the labor-related legacy costs associated with the North American sites. They are being acquired by GM Components Holding LLC together with Delphi’s global Steering business.
Delphi will continue the wind-down and disposition of several discontinued operations, primarily located in the United States, through a reorganized entity expected to be called DPH Holdings Co. The sites include: Athens, Ala.; Fitzgerald, Ga.; New Castle, Ind.; Olathe, Kan.; select sites in Flint and Saginaw, Mich.; Clinton, Miss.; select sites in Columbus, Cortland, Dayton, Kettering and Warren, Ohio; a leased facility in Columbia, Tenn.; and Oak Creek Wisc.
Delphi Steering was spun off in 1999 as part of GM’s ill-fated spin off of Delphi. It has a 100-year history of innovation as well as comprehensive in-house design and development capabilities.
Other makers than GM depend on Delphi Steering, once known as Saginaw Steering Gear. Last year, it had sales of $2.1 billion and than 60 customers around the world. It has approximately 7,730 employees in 17 manufacturing plants, six regional engineering centers and 14 customer support centers located in North and South America, Europe and Asia.
Delphi Steering will focus on the development of electric power steering, a green technology that offers automakers increased fuel economy and reduced emissions. The electric power steering unit is critical to GM’s Chevrolet Volt and Opel’s Ampera, as well as almost all of GM’s other production models.
“After an extended period of complex and challenging discussions with a wide range of stakeholders, we are confident that these modifications to our confirmed Plan of Reorganization will provide a resolution that will allow Delphi to emerge from Chapter 11,” said Rodney O’Neal, Delphi CEO and president. “We are grateful for the patience of our customers, who have placed their trust in Delphi’s ability to provide world-class products and uninterrupted supply, and the support of our suppliers who have contributed broadly to our efforts,” O’Neal said.
The New Delphi will continue to develop technology and products and produce them for the benefit of its customers under the guidance of Platinum, he said.
“A healthy, sustainable supply base is the best foundation for any effort to revitalize the auto industry,” said Platinum Equity Chairman and CEO Tom Gores. “Automakers need strong suppliers in order to rebuild their own businesses and return to profitability. It starts from the ground up and we look forward to contributing to that process.”
Platinum has substantial knowledge of Delphi’s operations and a strong working relationship with the company, its stakeholders and its global OEM customer base.
“We know the business very well and understand its potential,” added Gores. “Despite the obvious challenges facing the auto industry, we are excited at the opportunity to be a part of its renewal. Our top priority is working together with customers, employees, and suppliers to ensure long-term success for Delphi.”
John Sheehan, Delphi vice president and chief financial officer, also said the new plan will translate into a significantly smaller recovery for many of Delphi’s senior stakeholders since Delphi laid out its first plan for emerging from bankruptcy in late 2007.
GM Statement On a Bankruptcy Court order for Delphi to hold an auction for Delphi assets:
On June 16, 2009, Judge Robert Drain of the U.S. Bankruptcy Court for the Southern District of New York approved a sale procedures order for Delphi Corporation. This order provides that Delphi’s assets will be sold pursuant to an open process either to Platinum Equity or to other potential bidders who submit a competing bid.Importantly, Judge Drain has scheduled a final hearing for July 23, 2009, and the parties expect an approved transaction to close by the end of July.
GM fully supports a competitive bidding process as provided for in the court order, whereby parties are free to submit competing bids to Delphi.GM, as Delphi’s largest customer, will evaluate whether to support any potential offer, including whether to provide financing to facilitate such an offer, based on a number of principles.
Over the past several months, GM has articulated these principles to Delphi and to all parties that have indicated an interest in Delphi, including the Delphi Debtor in Possession (DIP) lenders.These principles will continue to guide GM’s prospective support for any potential offer. Specifically, in order to obtain GM’s support, the transaction must, at a minimum:
*Provide a full and final global resolution to Delphi’s bankruptcy case;
*Provide a strong team to lead Delphi and a business plan that will result in a healthy and well-capitalized Delphi that will serve as a long-term, extremely stable supplier to GM;
*Provide GM with the right to acquire key sites and operations; and
*Provide a high level of certainty of closing within the timeline outlined by the U.S. Bankruptcy Court.
GM believes it is of critical importance that the Delphi situation be resolved as soon as possible. As previously disclosed, GM is prepared to advance needed liquidity to Delphi, but only in the context of a committed transaction process that addresses all of the principles described above.
To date, only Platinum Equity has been able to address all of these principles and to commit to a final transaction.
All other third parties who had approached Delphi had agreed to the same timetable but did not present a final, committed transaction by June 1.
Nevertheless, GM fully supports Judge Drain’s decision to allow any other party an opportunity to meet these conditions and to participate in the bidding process within the timeline approved by the Court to successfully resolve the Delphi bankruptcy case.