Big Setback for Delphi

April 4, 2008

It was supposed to be a big day for Delphi, the bankrupt Detroit-based auto supplier that was expecting to emerge from bankruptcy with the help of a big-buck investment by Appaloosa Management.

But with Delphi facing a Friday deadline to raise $6.1 billion to exit Chapter 11, the hedge fund and a group of key investors decided, at the 11th hour to back out on a planned $2.55 billion investment.

A Delphi release said the parts maker was "extremely disappointed," but tried to put a positive spin on the setback, insisting Delphi will move forward to emerge from bankruptcy "as soon as practicable."

Blame the weakening economy and tightening credit.

"The weak credit markets make it difficult for companies to obtain the financing needed to come out of bankruptcy," Arthur Weiss, a portfolio manager at Group G Capital Partners LLC, said last week. "Delphi has experienced such problems even though it has strong sponsors behind it."

Delphi wasn’t the only one disappointed by Appaloosa’s decision. General Motors’ stock also took a hit as the market digested the news. Delphi is made up of a number of one-time GM parts operations, and the giant automaker remains the supplier’s biggest customer. GM has provided significant financial help to Delphi and could be on the hook for more. On the other hand, a strong and viable Delphi could provide GM significant savings on automotive parts and components.

Appaloosa didn’t walk away entirely. It hinted, in a release, that it could come back to Delphi, “in a capacity different than currently envisioned” by the original, $2.55 billion investment.

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