Delphi negotiates settlement with GM

US auto parts maker, Delphi has successfully negotiated a definitive settlement and restructuring agreement with global auto major General Motors (GM), its former parent company, removing a major hurdle to its emergence from its two-year long Chapter 11 bankruptcy protection. In 1999, GM spun Delphi into a separate company.

Delphi's settlement with GM resolves all outstanding issues between Delphi and GM including: - litigation commenced in March 2006, by Delphi, to terminate certain supply agreements with GM; all potential claims and disputes with GM arising out of the separation of Delphi from GM in 1999; certain post-separation claims and disputes between Delphi and GM; the proofs of claim filed by GM against Delphi in Delphi's Chapter 11 cases; GM's treatment under Delphi's proposed plan of reorganisation, and various other legacy and ordinary course business matters between the companies.

The deal includes agreements on work and pay with Delphi's six labour unions; Delphi will pay GM $2.7 billion to fund early retirement and buyout plans offered to hourly workers, for which GM has agreed to reimburse Delphi for labour costs over $26 an hour at some of its plants.

These agreements have enabled the auto parts maker to file a reorganisation plan with the bankruptcy court. Delphi says it is now confident of securing the $7 billion it requires to shed the bankruptcy protection and is negotiating with a consortium of banks.

Its reorganisation plan also includes a $2.5 billion investment from a group led by Appaloosa Management, which it backed in July rejecting a higher alternate investment offer of $3.3 billion from Highland Capital Management LP, Delphi's second-largest shareholder. (See: Delphi backs Appaloosa's $2.55 billion bid, rejects Highland's offer)

Highlights of the deal:

• Through the MRA, Delphi and GM have agreed to certain terms and conditions governing, among other things:
• The scope of existing business awards, related pricing agreements, and extensions of certain existing supply agreements
• GM's ability to move production to alternative suppliers
• Reorganised Delphi's rights to bid and qualify for new business awards.
• GM will make significant, ongoing contributions to Delphi and Reorganized Delphi to reimburse the company for labour costs in excess of $26 per hour at specified manufacturing facilities
• GM and Delphi have agreed to certain terms and conditions concerning the sale of certain of its non-core businesses
• GM and Delphi have agreed to certain additional terms and conditions if certain of its businesses and facilities are not sold or wound down by certain future dates (as defined in the MRA);
• GM and Delphi have agreed to the treatment of certain contracts between Delphi and GM arising from Delphi's separation from GM and other contracts between Delphi and GM