DPH - Chapter 11
John Stoll
Of DOW JONES NEWSWIRES
DETROIT (Dow Jones)--Delphi Corp. (DPH), the world's largest auto supplier in
terms of revenue, filed for Chapter 11 bankruptcy protection Saturday in New
York in an attempt to restructure its money-losing U.S. business and resolve a
variety of labor issues.
The Troy, Mich. company has secured $4.5 billion in third-party funding to
finance global operations and plans to emerge from bankruptcy in early to
mid-2007. The company said that its 38 U.S. subsidiaries are included in the
Chapter 11 filing, but that non-U.S. units aren't part of the move. Delphi has
more than $1 billion on hand outside the U.S. to fund its global operations,
and the company said it doesn't plan to repatriate that money to finance its
U.S. business.
"Our global operations will continue without interruption," Delphi Chairman
and Chief Executive, Robert S. "Steve" Miller said in an interview. He added
that customers can be assured that Delphi will continue to meet scheduling,
delivery and productions needs.
By filing for bankruptcy, the auto supplier ends negotiations with its top
customer and former parent General Motors Corp. (GM) and with the United Auto
Workers union. Delphi had been seeking significant bailout funds and labor
concessions from the two parties, but the talks stalled due to an inability to
forge a deal. Miller had said repeatedly in recent weeks that without a deal
with GM and the UAW, Delphi would file for Chapter 11 by Oct. 17, when
bankruptcy laws tighten.
"This was a three-sided discussion that now will continue, just in the
Chapter 11 framework. We just ran out of time," Miller said. "There's no blame
I'm passing out for this. It was too complex."
Delphi, faced with high labor costs, rising raw material costs and falling
production at top U.S. customers, has struggled to find profitability. In the
first half of 2005, the company posted a net loss of $747 million, after losing
$4.87 billion last year.
"We took this action because we are determined to achieve competitiveness for
Delphi's core U.S. operations, and the key to accomplishing that goal is
reducing these costs as soon as possible," Miller said in a press release
announcing the bankruptcy plans. "We simply cannot afford to continue to be
encumbered by high legacy issues and burdensome restrictions under current
labor agreements that impair our ability to compete," he said.
Delphi, which was spun off from GM in 1999, employs approximately 33,000 UAW
workers in the U.S. and pays benefits to 12,000 union retirees. About 4,000
workers are in the company's "jobs bank", which is designed to pay laid-off
workers and is costing the supplier about $400 million a year.
Delphi is expecting relief from the bankruptcy court permitting the company
to continue to pay wages, salaries and current benefits of U.S. hourly and
salaried employees, Miller said in the interview. Eventually, the company would
like to cut hourly wages to "more competitive" levels and is hoping to get
cooperation from the UAW in coming months in determining a new wage.
The company also plans to realign its global product portfolio, which will
require "a substantial segment of our U.S. manufacturing operations to be
divested, consolidated or wound-down through the Chapter 11 process," Miller
said in the press release.
Delphi shares and bond prices plunged in recent days as expectations mounted
that a Chapter 11 filing was imminent. Delphi's filing could generate further
ripples in financial markets, with the impact likely to be most significant in
the high yield debt and credit derivatives markets.
The high yield market, in particular, has been under pressure amid concerns
about the credit quality of auto sector companies ever since GM and Ford Motor
Co. (F) had their debt ratings cut to junk earlier this year. The market impact
won't be fully known until Tuesday, as the U.S. debt market will be closed
Monday for the Columbus Day holiday. |
