Bankruptcy court lets Delphi Corp axe benefits

25 February 2009

A US bankruptcy judge has provisionally granted bankrupt car parts maker Delphi Corp permission to end health care and life insurance benefits for its retired salaried workers as of April, but left a door open for some former employees to be excluded from the move.

Under its Chapter 11 filing for bankruptcy protection, Delphi, one of the biggest suppliers to ailing car major General Motors, sought relief from the benefits which cost it more than $70 million per year. The benefits amount to liabilities of more than $1.1 billion on its balance sheet.

Citing Delphi's need to conserve liquidity, Judge Robert Drain of the bankruptcy court of the Southern District of New York said that the company had waited for a sufficient time before seeking to suspend the benefits.

Delphi, which filed for Chapter 11 in 2005, has had complications with its exit financing over the last year and recently said former parent General Motors Corp was in talks to buy back parts of the company.

Lawyers for about 15,000 salaried retirees had argued that parts of the US bankruptcy code limited the ability of a debtor in possession to modify retiree benefits, but Delphi countered that those benefits are provided "at will''. Judge Drain seemed to agree, ruling that the code only applied when retirees could prove they have a guaranteed right to those benefits.

"It is crystal clear to me that debtor is well within its business judgment in assuming that it will need to eliminate the projected (post-retirement benefits) liability, which is projected at $1.1 billion, in order to reorganize," Drain said.