DETROIT -- A New York company is offering quick cash to Delphi Corp. suppliers that have not been paid for parts delivered before Delphi sought Chapter 11 bankruptcy protection.
Riverside Claims LLC ran an ad in the Nov. 7 issue of Automotive News announcing its intention to buy Delphi claims from suppliers for immediate cash.
Managing Member Neil Herskowitz said Riverside Claims negotiates to buy the claims for some fraction on the dollar. He declined to disclose a percentage for competitive reasons.
Riverside Claims buys the claims and takes the risk that a company reorganizing in Chapter 11 will pay a higher percentage of the claims than it bought from suppliers, Herskowitz said.
Over the past five years, the company has bought $50 million worth of claims from suppliers to bankrupt companies, Herskowitz said. Spreading the risk over several companies and buying the claims at the right price can mean a profit, he said.
Unsecured creditors of bankrupt companies can wait months or years to get paid for pre-bankruptcy claims. Often, payment is a fraction of the total debt.
It's not clear how many companies are acquiring Delphi debts, but Delphi has expected there to be an active market for such debt since the beginning of the case.
"Liquidity in the secondary market is a good thing, not a bad thing," said Jack Butler, Delphi's chief bankruptcy attorney, during an Oct. 12 press conference. "And the fact that there are people out there that have funds that will give liquidity to people that have claims in our reorganization is a positive thing. We want our stakeholders to have liquidity."
Butler, who is with the Chicago office of law firm Skadden, Arps, Slate, Meagher & Flom, said all aspects of Delphi's debt -- including bonds, lines of credit and term loans -- are up for grabs.
"You name a claim against this company and most of them are up for sale," he said.
A deal with a company like Riverside Claims also allows a supplier to take a tax deduction sooner for the loss between the payout and the value of the claims, Herskowitz said. Suppliers who wait until the resolution of a bankruptcy case to know their losses only then can claim tax deductions.
When Delphi put its U.S. operations in Chapter 11 protection on Oct. 8, it may have done so owing its suppliers more than $1 billion for the parts already delivered to the parts giant.
Delphi has bankruptcy court permission to pay as much as $90 million to distressed essential suppliers for pre-bankruptcy claims to get them the cash for the claims that normally would be frozen by the court until after reorganization.
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