GM Bid to Aid Delphi Bankruptcy Exit Stalls as Appaloosa Leaves

General Motors Corp.'s bid to help its largest parts supplier leave bankruptcy stalled when the proposed lead investor in Delphi Corp.'s reorganization plan pulled out.

Yesterday's withdrawal by Appaloosa Management LP, alleging violations of its $2.55 billion investment accord, ramps up pressure on GM to help Delphi raise the funding to end more than two years in bankruptcy. Appaloosa objected to a larger GM role.

``The whole thing has been a disaster for GM,'' said David Healy, a Burnham Securities Inc. analyst in Sierra Vista, Arizona. ``Delphi is going to emerge from bankruptcy with proper financing, but it may take more contributions from GM or a wait until the credit markets improve.''

Appaloosa, acting a day before today's deadline to end the deal without paying a $250 million breakup fee, said Delphi failed to show it could get $6.1 billion in exit loans, among other complaints. Delphi said in a statement it was ``prepared to pursue actions,'' without elaborating.

Delphi's options include scuttling its reorganization plan and creating a new one or trying to reassemble the investment team. The Troy, Michigan-based company, which contends that it has met all conditions of the investment agreement, also could attempt to force the investors to commit to the accord or pay a breakup fee.

Pension Obligation

A revised exit plan probably would involve GM taking on more pension obligations from Delphi, said Brian Johnson, a Lehman Brothers analyst in Chicago, in a note to investors.

GM already has agreed to assume $1.5 billion of Delphi's $3.3 billion in underfunded pension liabilities, he said. Taking on more of the obligations could reduce the amount of investment needed from Appaloosa and others to $1.5 billion, said Johnson, who rates GM shares ``neutral.''

Pushing back Delphi's bankruptcy exit also means delaying the $1.5 billion in annual savings GM expects on parts contracts through the reorganization. GM has already spent $7.5 billion on labor agreements and plant closings to aid Delphi.

GM fell $1.01 to $20.58 yesterday in New York Stock Exchange composite trading. Delphi declined 1 cent to 11 cents in over-the-counter trading.

The Detroit-based automaker said in a statement on its Web site that it was disappointed with the investor withdrawal and will keep working to help Delphi leave court protection. GM spun off the parts supplier in 1999.

Open to Revisions

Appaloosa said in a termination letter included in a U.S. filing that it's open to investing in Delphi under revised conditions. David Tepper, the Chatham, New Jersey-based investment firm's president, declined to comment beyond the letter. The firm asked for $82.5 million from Delphi for changing the terms of the agreement.

``We are extremely disappointed that our plan investors have taken the position that they are not obligated to fund their plan investment commitments,'' John Sheehan, Delphi's restructuring chief, said in the statement. The company is moving forward to leave bankruptcy ``as soon as practicable,'' he said. Its U.S. operations have been in Chapter 11 protection since October 2005.

Appaloosa and other members of the investment group would have gotten preferred and common shares for their investment. The group also includes Goldman Sachs Group Inc., Harbinger Capital Partners, Merrill Lynch & Co. Inc., UBS AG and Pardus Capital Management LP.

`No Viable Path'

In court filings, Appaloosa has called Delphi's reorganization plan ``tenuous'' and said that ``no viable path to emergence presently exists'' and that Delphi may need to stay in bankruptcy ``while the domestic credit markets remain troubled.''

Appaloosa's letter yesterday cited Delphi's accord with GM on loans. The firm objected to greater participation by GM in the financing plan announced in March, saying that would interfere with the supplier's ability to win non-GM business.

The Delphi financing plan called for GM to assume as much as $2.83 billion of the debt through a subsidiary, more than triple its previous $750 million commitment. GM agreed to assume more of the loans after Delphi wasn't able to get as much as $8.7 billion in exit financing and twice cut the loan package's target value.

Philip Falcone, Harbinger's managing director, and Karim Samii, Pardus's president, didn't respond to messages seeking comment.

Tepper, known for making bets on distressed companies, was the former head of junk-bond trading at Goldman Sachs before forming Appaloosa in 1993. His Palomino fund has returned an average of about 25 percent a year since the start of 1995. This year, the fund fell 17.5 percent through March 31.

Bonds, Swaps

GM's 8.375 percent note due in July 2033 rose 0.5 cent to 73 cents on the dollar, the highest price in almost a month, according to Trace, the NASD's bond-price reporting service. The yield fell to 11.7 percent.

Delphi's 6.5 percent note due August 2013 declined 2 cents to 35 cents on the dollar.

Credit-default swaps on GM debt fell 32.2 basis points to 1,029.6 basis points, according to CMA Datavision in New York. The contracts are designed to protect bondholders against default. A drop in the price indicates an increase in the perception of a company's credit quality.

Delphi joins a list of investment deals that have stalled or died because of the deteriorating credit market or changes in the companies' financial outlook.

They include buyouts of Clear Channel Communications Inc., the largest U.S. radio broadcaster, and SLM Corp., the biggest U.S. student-loan provider.

In February, Solutia Inc., a nylon and plastics maker, emerged from bankruptcy after settling a $2 billion funding dispute with Citigroup Inc., Goldman Sachs and Deutsche Bank AG.

Dura Automotive Systems Inc.'s exit from bankruptcy was delayed last year when Goldman Sachs Credit Partners LP and Barclays Capital were unable to raise $425 million in financing. Dura had to scuttle its reorganization plan and won approval yesterday to send a new proposal to creditors for a vote.