NEW YORK -- Delphi Corp. has preliminary approval for $950 million in debtor-in-possession financing, despite the concerns of some of its pre-Chapter 11 lenders.
Delphi attorney Jack Butler said the deal was essential for the peace of mind of the suppliers vendors and customers.
Butler, a partner at Chicago-based Skadden, Arps, Slate Meagher & Flom LLP, said the company will need to use $565 million in cash this month and wants a $400 million cash balance.
In my view, $950 million is appropriate to have the cushion, said Judge Robert Drain of U.S. Bankruptcy Court.
Delphi, of Troy, Mich., filed for Chapter 11 bankruptcy protection on Saturday, Oct. 8, in U.S. Bankruptcy Court in New York City. The supplier ranked No. 2 on the Automotive News list of top 100 global original equipment parts suppliers with original equipment sales of $24.10 billion in 2004.
Drain and about 100 attorneys worked late into the night Tuesday, Oct. 11, to approve several first day motions. Those included agreements to pay employee wages and benefits and more mundane matters such as seeking approval to pay utility bills.
A final hearing will be held later to complete the debtor-in-possession deal, led by JP Morgan Chase and Citigroup. Drain wants Delphi to reach agreements with those that objected to some of the terms.
An attorney for one of the banks said the way the deal is structured puts pre-Chapter 11 secured lenders too far back too soon in the case. He noted that within 60 days, the senior bank debt will be junior to $950 million.
But Butler said keeping Delphis vast vendor base stable and its customers confident is critical to a successful reorganization.
'Essential suppliers' to get paid
Drain also granted a Delphi request to pay up to $90 million to essential suppliers for parts delivered before the company filed for bankruptcy protection. Butler argued that Delphi would risk parts interruptions if it were unable to pay sole-source, financially distressed vendors and those in the companys long-established vendor-rescue program.
Delphi spends about $50 million annually to keep certain critical suppliers in business, Butler said. Those suppliers could ill-afford to have the court withhold payments for parts already delivered, Butler said.
To make sure the bankruptcy filing didnt cause additional stress on those suppliers, Delphi prepaid about $76 million to them before the filing, Butler said. In exchange, those suppliers agreed to accept Delphis payment terms.
That $76 million was in addition to the normal monthly payment Delphi made to its 2,000 U.S. suppliers on Oct. 4. Delphi typically pays out $1.3 billion monthly to its U.S. suppliers for parts they deliver.
Drain also set the schedule for Delphi to negotiate a new labor agreement with its hourly workers or for the courts possibly terminating the contracts.
The judge set the hearing for that issue for Jan. 11. Delphi and its unions plan to negotiate a new labor agreement for the rest of this year. In the meantime, Delphi will continue to pay its regular wages and benefits to employees and retirees.
One of the main reasons Delphi filed for bankruptcy was the high wages it pays compared with other suppliers. Delphi spun off from General Motors in 1999 and still pays most of its hourly workers GM-level wages and benefits.
Delphi attorney Butler said the auto supplier needs to settle the issue as soon as possible because of losses that totaled $471 million in the first half of the year.
Terry Kosdrosky is a reporter at Crain's Detroit Business
You may e-mail David Barkholz at