DETROIT -- General Motors prefers cash rather than equity as compensation for the $4 billion in claims that it has accumulated in the Delphi bankruptcy case.
GM, Delphi's largest customer, says it is owed the money for future retiree costs incurred as part of its buyout of more than 20,000 hourly Delphi workers this year. GM's claims are a crucial piece in the future ownership and control of the auto supplier. Claims can be bought and sold as part of the reorganization process.
As Delphi's largest potential unsecured creditor, GM stands to get significant equity in a reorganized Delphi if the parts supplier can't raise enough cash to pay the claims. But GM doesn't want to own Delphi again, said a GM executive last week who asked not to be identified.
GM CFO Fritz Henderson likewise told auto analysts in September that the car company would sell its Delphi equity for cash quickly if its claims were paid in stock and warrants. "We're not interested in being a long-term shareholder of Delphi," Henderson told the group.
The issue remains the subject of negotiations between GM, Delphi, creditors and financiers.
Delphi shareholders, including billionaire investor David Tepper, argue that the claims should be disallowed. GM spun off Delphi knowing it couldn't compete with its high labor and legacy costs as well as parts contracts demanding annual price cuts, the Official Committee of Equity Security Holders alleged in recent bankruptcy filings.
If the GM claims are allowed, the cost of repayment would leave no money left over to compensate shareholders for their stock, including Tepper. His Appaloosa Management LP hedge fund bought 52 million shares of Delphi for about 25 cents a share less than a week after Delphi filed for Chapter 11 reorganization on Oct. 8, 2005. That's 9.3 percent of Delphi common shares.
GM spokeswoman Gina Proia said the claims are legitimate. She declined further comment. Tepper did not return phone calls last week.
Bloomberg News this month reported that Tepper may join with Cerberus Capital Management LP to buy more of Delphi. Cerberus, which this year agreed to buy a 51 percent stake of GM's financing arm, GMAC, declined to comment earlier this month.
You may e-mail David Barkholz at [email protected]in.com