Delphi gets OK to freeze pensions
Delphi Corp. won permission from a bankruptcy court Tuesday to freeze its hourly and salaried pension plans, but will have to resume talks with its creditors before seeking approval of a new financing deal with former parent General Motors Corp. that could help the Troy-based auto supplier finally emerge from bankruptcy.
U.S. Bankruptcy Judge Robert Drain ruled that Delphi could freeze its pension plans, a move Delphi has planned for more than two years to reduce its labor costs. Delphi’s lead bankruptcy attorney Jack Butler said in an interview that the company would freeze its salaried pension plan by Sept. 30. Delphi is continuing to negotiate with its unions over the timing of freezing its hourly pension plan and wants to complete those talks by Sept. 30 as well.
But Drain dealt Delphi a potential blow when after meeting with creditors, Delphi and GM behind closed doors, he adjourned the hearing until Thursday. Butler said that Delphi and its creditors would be in negotiations until then.
The deal between GM and Delphi announced Sept. 12 has faced intense criticism from Delphi’s creditors, who complain Delphi has given up too much for more money from GM — an additional $4.6 billion contribution to Delphi’s transformation.
The $10.6 billion from GM includes $1.2 billion in cash payments through the end of the year to ensure Delphi’s liquidity. GM also agreed to assume $3.4 billion of Delphi’s underfunded hourly pension plan. GM is using its overfunded pension plan to fund some of Delphi’s pension liabilities. Delphi is racing to get approval for the deal before a new law takes effect on Oct. 1, making funding requirements more expensive.
The Pension Benefit Guaranty Corp. said the deal would ensure the pensions of 64,000 Delphi hourly employees and retirees. It said it would drop $1.2 billion in liens it had placed against Delphi’s foreign-based assets if Drain approved the transfer. The PBGC said it would be a “financial nightmare” if the contribution was not made before Sept. 30, when the law changes.
The PBGC said the new law would require Delphi to make a cash lump-sum payment before emerging. “The overhanging pension obligations would make it virtually impossible for (Delphi) to emerge from bankruptcy,” the agency said.
Drain said he was “very mindful of the time pressure” to reach a deal before Sept. 30.
Delphi’s creditors harshly object to GM’s added involvement and note that GM gets released from Delphi asserting any claims against it over the 1999 spinoff of Delphi. They argue that GM committed accounting fraud and other misdeeds, including “saddling” Delphi with expensive labor contacts making it nearly impossible for Delphi to succeed alone.
“The simple fact is (Delphi has) once again knuckled under GM’s demands … These agreements represent no less than the complete abdication by (Delphi) of all control over their destiny,” wrote Robert Rosenberg, a lawyer for the creditors. He called the deal “a surrender” by Delphi and “an incredibly good deal for GM.”
“GM is paying over $1 billion to compensate (Delphi) for the fact that GM has been forcing (Delphi) to sell parts to GM below cost and to partially offset the labor obligations GM had foisted upon” Delphi, Rosenberg wrote. “GM will, as it has from the beginning, run these cases for its own benefit, without regard to anyone else. The court should not countenance such a heavy-handed exercise of brute power.”
GM spokeswoman Renee Rashid-Merem declined to address the criticism from the creditors or shareholders. “It’s in no one’s interest for Delphi to remain in bankruptcy,” she said, adding that GM would continue to talk with Delphi and others. GM has booked $11 billion in charges related to Delphi.
Joseph Baldiga, a Massachusetts bankruptcy attorney who has represented creditors in several cases, said the court is likely to question whether Delphi could find financing anywhere else in a difficult credit market.
“Sure, the creditors are going to hold out for more but this seems like the last, best possibility for Delphi to emerge,” Baldiga said. “Unless the creditors have a better plan the court is going to be skeptical.”
Delphi’s shareholders committee chose not to object to the deal with GM, but sharply criticized it. Delphi has “been harmed and damaged since their inception and every day thereafter by GM’s domination and control,” wrote Bonnie Steingart, a lawyer for the shareholders committee.
They also noted that the United Auto Workers union isn’t opposing the new deal with GM.
Source: www.detnews.com
