Appaloosa backs out of Delphi deal in blow to GM
By David Bailey and Soyoung Kim
DETROIT (Reuters) - Investors led by Appaloosa Management backed out of a $2.55 billion equity deal to support Delphi Corp’s DPHIQ.PK emergence from bankruptcy on Friday, dealing a blow to General Motors Corp (GM.N: Quote, Profile, Research) and its goal of putting the problems of its former parts subsidiary behind it.
The development sends the parties back to the drawing board to hammer out an alternate arrangement for Delphi that could both force GM to offer Delphi more cash and delay its savings on parts purchases from the supplier it spun off in 1999, analysts said.
Delphi said it had arranged $6.1 billion in exit financing and started the process of completing its reorganization on Friday, when Appaloosa terminated the separate but related equity portion of the deal.
“We think this is a valuation issue…where investors who agreed to a deal in a different type of market environment are now experiencing buyer’s remorse,” said high-yield bond analyst Shelly Lombard with credit market research firm, Gimme Credit.
Delphi and the investors led by Appaloosa had announced the equity plan in December 2006, and the U.S. Bankruptcy Court in New York approved a revised version last August.
But the U.S. auto industry has continued its rocky downturn since the plan was adopted, and risk-averse investors have demanded better credit terms in recent months.
“It’s a new world since August,” Standard %26amp; Poor’s equity analyst Efraim Levy said.
The collapse of the Delphi deal, which hinged on new financing and an equity infusion, represented a one-two punch for GM, possibly costing it more cash up front and delaying its savings on parts purchases, analysts said. Continued…
Tags: Auto, auto industry, chase, downturn, general motors corp, gm, hell, reuters
