Crossy,
Normally I would post a link but this was sent to me in word.
I think its worth while reading to learn about the Delphi situation. So I attached the whole file. Tepper is the guy that was involved with NTLI if you recall.
I also attached a link from an article from yesterday relating to the postpone of a deadline until November. See link below.
biz.yahoo.com
10/13/06 – Reuters
Delphi pays $61 mln into its U.S. pension plans
Fri Oct 13, 2006 12:38 PM ET
CHICAGO, Oct 13 (Reuters) - Bankrupt auto parts maker Delphi Corp. <DPHIQ.PK> has made a $61 million contribution to its U.S. pension plans for the third quarter, the company said in a federal regulatory filing on Friday.
A minimum payment of about $300 million was due Friday under federal laws, but bankruptcy law permits Delphi to limit contributions to post-bankruptcy service. The unpaid portion remains a claim to be determined in the reorganization plan.
10/13/2006 TheStreet.com
thestreet.com
Playing the Union Card
While GM's quarterly earnings and sales results will be important factors for the stock, the other major hurdles that lie in wait for the company stem from labor relations.
GM's former subsidiary and chief parts supplier, Delphi (DPHIQ - commentary - Cramer's Take), is still negotiating a restructuring in bankruptcy proceedings with the United Auto Workers, and GM will negotiate its own master contract with the union next September. That process could dominate the automotive news headlines throughout 2007.
Novak points out that in his letter, York took particular care to praise the UAW's cooperation in the company's restructuring efforts. Such overtures, that seem intended to garner favor from organized labor, echo earlier criticisms that York made before he joined the company's board. He called on GM's management to adopt an attitude of "shared sacrifice" with the company's hourly workers.
"If getting ready for a fight, it would help to bring the union over to their side, considering the tough negotiations that lie ahead," Novak says.
If GM can't get out from under its cost issues and its market share continues to fall, the stock could start sliding again, and that's when Kerkorian could open fire with a proxy fight.
"They're probably formulating plans for something like that," Novak says. "They'll just wait for the right time to strike."
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Deal With Delphi Is Close, GM Says
Financial Aid for Parts Maker Still Being Discussed
By Tomoeh Murakami Tse
Washington Post Staff Writer
Thursday, October 12, 2006; D03
General Motors Corp. is close to reaching an agreement to pump cash into Delphi Corp., the troubled auto parts maker, in an effort to avert a strike that could disrupt the automaker's assembly lines, a GM official said yesterday.
Progress in the negotiations has been made to "most people's satisfaction," and a deal is "very close," said the official, who spoke on condition of anonymity because the talks are ongoing.
"The next 30 days are going to be very, very important," the official said, adding, "Now you're just into the fine print."
The official said details of the deal and the nature of GM's financial contribution to Delphi are still being worked out. Delphi has asked a bankruptcy court judge for permission to toss out its labor contracts in a bid to lower employee wages. The unions have vowed to strike if Delphi wins the right to dump the contracts. The bankruptcy judge has postponed a decision to encourage the sides to reach an agreement.
Lindsey Williams, a Delphi spokesman, said "the talks are ongoing and have been productive." He declined to comment further, saying the company did not want to jeopardize discussions.
Delphi, spun off by GM in 1999, is GM's No. 1 supplier. The company filed for Chapter 11 bankruptcy protection last October, citing intensified international competition and the high cost of union labor.
For GM, an agreement would impose additional pressure on its bottom line. The No. 1 automaker is restructuring to reverse a deep slump that resulted in a $10.6 billion loss for 2005. In recent months, the company has reported improvements in sales from year-ago levels.
Gary Chaison, professor of labor relations at Clark University in Massachusetts, said GM has few other options than to help Delphi get back on its feet.
"I don't know how General Motors can afford to do this. But the question is, can they really afford not to?" Chaison said. "Delphi has managed to use its leverage very well."
The potential agreement, Chaison said, is also likely to influence next year's contract negotiations between Detroit's Big Three auto companies and the United Auto Workers. The financial aid to Delphi could force GM to look for further ways to cut labor expenses.
"The 2007 negotiations are really going to be explosive," said Chaison. "This is just the beginning."
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Report: GM close to Delphi subsidy
Deal with parts firm could avert strike
Bloomberg News
Published October 12, 2006
DETROIT -- General Motors Corp. is nearing an agreement to provide financial aid to Delphi Corp. and avert a strike at the struggling auto-parts maker that would cripple GM's production, people with knowledge of negotiations with Delphi creditors said Wednesday.
The accord calls for GM to subsidize Delphi workers' pay and to prolong contracts for parts purchases, locking in future revenue for Delphi, according to five people who didn't want to be identified because the discussions aren't public.
Financial help from GM, Delphi's biggest creditor, might allow the parts producer to scale back wage-cut demands and ward off a United Auto Workers strike. GM Chief Executive Rick Wagoner said last week that resolving the Delphi matter without a long walkout is one of the biggest challenges facing the world's largest automaker.
"All the parties need an agreement," said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis. "They can either reach one through complex, extended negotiations, or one will be forced down their throats by the bankruptcy judge." Delphi filed for Chapter 11 bankruptcy protection last year.
The automaker is Delphi's biggest customer, and GM depends on it for a steady supply of parts such as air conditioners and radios. A widespread Delphi strike would close GM plants in North America within 48 hours, according to Sean McAlinden, an analyst with the Center for Automotive Research in Ann Arbor, Mich.
GM is also on the hook for $5.5 billion to $12 billion in retirement costs of former GM employees who stayed with Delphi after its 1999 spinoff. The new agreement probably won't change the size of that payout, according to two of the people familiar with the talks.
Negotiations on the financial aid could be concluded this month, sources said. Delphi has a hearing next week in U.S. Bankruptcy Court, where it is seeking permission to scrap labor contracts.
GM and Delphi had no comment. UAW spokesman Roger Kerson declined to comment on the negotiations.
Other creditors are trying to limit GM's post-bankruptcy claim on Delphi so they can recoup more of their own losses. The creditors' panel in April objected to any agreement requiring Delphi to repay GM for labor costs.
Settling the dispute now would keep the issue from dragging on in court, three of the people said.
Buzz Hargrove, president of the Canadian Auto Workers union, said any deal to subsidize wages and lock GM into a longer parts-buying contract is good for everyone involved.
"If the industry had been forced to take major cuts because of Delphi, it would have been a disaster for working people," Hargrove said.
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10/12/2006
3:56 AM ET 10/11/06
GM, Delphi, creditors near strike deal -Bloomberg
NEW YORK, Oct 11 (Reuters) - Bankrupt auto parts company Delphi Corp. is near an agreement with former parent General Motors Corp. and other creditors to avoid a strike, according to a news report on Wednesday.
The deal calls for GM to subsidize Delphi workers' pay and prolong contracts for parts purchases, according to Bloomberg, citing five people familiar with the matter. Such a deal would lock in future revenue for Delphi.
Delphi earlier in 2006 reached agreement with its two largest unions and GM to offer buyouts and early retirement to workers. It has yet to reach agreement on wages and benefits for workers who stay and has sought authority to impose cuts.
Unions have threatened to strike should Delphi impose cuts, a move that could quickly hit production at GM, still its largest customer, and other automakers, possibly costing billions of dollars.
GM helped to subsidize Delphi's retirement and buyout plans and earlier in 2006 Delphi proposed two different wage scales for U.S. union workers, one with slightly higher wages that assumed financial assistance from the automaker.
Delphi spokesman Lindsey Williams declined to comment on the report.
"We've been talking with GM and the statutory committees on a number of avenues and won't discuss publicly those issues," Williams said.
More than 20,000 U.S. Delphi hourly workers have accepted buyouts or early retirements and are expected to leave the company by the end of 2006, and analysts see the exodus as greatly reducing the likelihood of a strike at Delphi.
REUTERS
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10/8/06
Delphi's new chapter
One year after filing for bankruptcy protection, the auto-parts maker struggles with a sharply reduced workforce but makes on-time shipments
BY JASON ROBERSON
FREE PRESS BUSINESS WRITER
October 8, 2006
Steve Miller, chairman and CEO of Delphi Corp. (MANDI WRIGHT/Detroit Free Press)
Delphi's goals
Delphi says it has focused on five key areas during its bankruptcy:
• Modifying labor agreements to be competitive with other suppliers.
• Concluding negotiations with General Motors to finalize financial support for legacy and labor costs and to clarify GM's business commitment to Delphi.
• Streamlining its product portfolio to capitalize on technology.
• Transforming the salaried workforce to ensure its cost structure is competitive and fits the product portfolio.
• Devising a solution to its current pension situation, whether it is to stretch out pension payments or to develop an alternative solution.
Delphi time line
Oct. 6, 2005: Unions say Delphi is demanding as much as a 63% wage cut, to $10 an hour, and for workers to pay 27% of their health care costs, instead of 7%. Pensions could be halved.
Oct. 8: Delphi files for Chapter 11 bankruptcy protection, becoming the largest U.S. manufacturer to do so.
Oct. 11: Delphi wins approval in U.S. Bankruptcy Court for a $950-million loan to keep U.S. plants operating.
Oct. 17: A U.S. trustee selects Delphi's creditors committee, the group responsible for consulting, investigating and negotiating a reorganization plan.
Nov. 16: The UAW reveals that Delphi wants 24,000 jobs cut on top of reducing wages and benefits for remaining workers.
Nov. 24: General Motors Corp. agrees to pay higher prices for parts it buys from Delphi.
Dec. 9: Delphi says it will pay the 12 members on its board of directors $140,000 to $200,000 a year in cash instead of stock.
Dec. 30: Delphi reveals it lost $127 million and spent $23 million on lawyers and other bankruptcy-related fees from Oct. 8, when it filed for bankruptcy, through Nov. 30.
Jan. 25, 2006: The UAW gets a nonvoting position on Delphi's creditors committee.
Jan. 31: Delphi announces it lost $1.1 billion in December.
Feb. 17: Delphi sets a March 30 deadline for reaching a deal with GM and the UAW.
March 16: David Tepper, president of Appaloosa Management LP, one of Delphi Corp.'s largest shareholders, sends a letter to the board of directors saying that the company's bankruptcy is a premeditated scheme for Delphi CEO Steve Miller and his management team to get rich.
March 22: General Motors Corp. strikes a historic jobs-cutting deal with Delphi and the UAW.
March 31: Delphi outlines which plants it will close. The company plans to shed 25 of its 33 U.S. plants by January 2008 while cutting 23,000 workers -- including 10,000 in Michigan. Plants in Flint, Adrian, Coopersville, Saginaw and Orion are on the hit list.
May 16: The UAW's Delphi workers vote to strike if the auto supplier cancels contracts.
June 5: Henry Reichard, chairman of Delphi's second-largest union, the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers dies at his home in Dayton, Ohio.
June 9: Delphi and GM unveil an agreement that will allow Delphi to shed up to 10,000 UAW members beyond the job reductions already in place.
July 24: Delphi announces it has sold an $11.2-million stake in a broadband technology company and hired an outside firm to help sell two other businesses.
July 31: Delphi reports a $1.86-billion loss for June. The bulk of the loss was related to its attrition program.
August-September: Delphi attends court proceedings and continues to negotiate with GM and its unions.
By the numbers
20,100 Number of hourly Delphi workers who have agreed to leave.
34,400 Number of hourly GM workers who have agreed to leave.
$5.5 billion The charge GM took in the fourth quarter of 2005 for the attrition plan.
$1.7 billion The charge Delphi took in June for the attrition plan.
$4.8 billion The amount Delphi has lost since filing for bankruptcy.
A year ago today, Delphi Corp. became the nation's largest manufacturer to file for bankruptcy, and since then, the company and its workforce have changed forever.
Delphi said it filed for bankruptcy because it was losing money, needed to shut down uncompetitive businesses and could no longer afford to pay the full wages of its unionized workers.
Progress has been made on all of those fronts -- but at a price:
• Bankruptcy has proven to be expensive for both Delphi and its former owner, General Motors Corp. Delphi has lost $4.8 billion since the filing, and GM, which depends on Delphi for thousands of parts, said helping to keep Delphi healthy could cost up to $12 billion.
• Delphi said it no longer could afford to pay its 33,000 hourly workers the wages it once promised and threatened to void labor contracts if its wage-cutting proposals were not accepted.
Delphi's unions passed strike votes, but the company sidestepped the threat with an attrition plan that paid 34,400 GM hourly workers and 20,100 Delphi hourly workers to leave.
GM took a $5.5-billion charge for the bankruptcy in the fourth quarter of 2005. Delphi took a $1.7-billion charge in June because of the attrition plan.
On the positive side, the bankruptcy has put Delphi in a more competitive position. Delphi reduced labor costs, avoided a strike and has not missed a shipment to customers.
Delphi continues to win new business with customers, including its security system technology available on the 2007 Harley-Davidson motorcycle; the StabiliTrak electronic stability control system on the new Saturn Aura sedan; a climate control system on Ford's Fusion mid-size sedan, and a number of features on Ferrari's newest luxury vehicle, the 599 GTB.
Depleted numbers
Perhaps most compelling, Delphi's bankruptcy has put a spotlight on the American labor movement.
The UAW has lost more than 40,000 active members at GM and Delphi after they agreed to retire or take buyouts when the companies offered the options March 22.
Though the union negotiated the terms of the attrition plan with GM and Delphi, it has consistently disagreed with Delphi's reasons for filing for bankruptcy.
"Delphi's mechanical bankruptcy filing has forced members of our union to confront corporate executives who are out to enrich themselves at the expense of workers, communities and shareholders," UAW President Ron Gettelfinger told the Free Press Friday.
Gettelfinger said he blames Delphi CEO Steve Miller for working to destroy decades of hard work in negotiating labor contracts. Miller was unavailable for comment.
"We're as determined as ever to win a fair agreement at Delphi and to change U.S. bankruptcy laws so that in the future, corporations cannot shield their overseas assets and feed lavish compensation to their executives while demanding that the courts allow them to slash pay and benefits for rank-and-file workers," Gettelfinger said.
Union local presidents said they've worked longer hours since Delphi filed for bankruptcy.
"While we're working with our members to assess and sign up for the attrition program, we've hired hundreds of temporary workers that have to be orientated into the union and then trained at the company," said Robert Betts, 45, president of UAW Local 2151 in Coopersville.
For instance, at Delphi's Coopersville plant, which builds fuel injectors, 530 of the plant's 560 workers have agreed to retire or take a job at GM. An estimated 380 temporary workers, who make about half the hourly wages of full-time workers, have been hired since Delphi filed for bankruptcy.
Now, those close to the bankruptcy proceedings say GM and Delphi are preparing to release a memorandum of understanding to fix specific problems. The memorandum is seen as a prelude to an agreement between Delphi, GM and their unions.
"Everybody ultimately is going to benefit from the increased speed of restructuring that has resulted from this bankruptcy," said David Cole, director of the Center for Automotive Research in Ann Arbor.
Contact JASON ROBERSON at 313-222-8763 or jroberson@freepress.com.
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10/6/06
Cerberus May Invest in Bankrupt Delphi, People Say (Update2)
By Jeff Green and John Lippert
Oct. 6 (Bloomberg) -- Cerberus Capital Management LP, the private-equity firm that's buying part of General Motors Corp.'s finance unit, may invest in GM's former auto-parts maker Delphi Corp., people familiar with the discussions said.
Cerberus may join a group led by Appaloosa Management LP in acquiring an interest in bankrupt Delphi, the biggest U.S. auto- parts supplier, according to five people with knowledge of the talks who didn't want to be named because they are private. Cerberus executives met with union leaders last month seeking their support for a possible bid, one of the people said.
The firm's buyout interest follows investments in the struggling industry by Wilbur Ross's WL Ross & Co. and Carl Icahn's Icahn Management LP. They're betting they can turn a profit by buying stakes in suppliers and selling them if performance improves.
``It doesn't have to be a good company, just undervalued,'' said Jim Gillette, an automotive analyst for CSM Worldwide Inc. in Grand Rapids, Michigan. ``There is a tremendous amount of opportunity out there as the industry restructures.''
New York-based Appaloosa, run by investor David Tepper, is Delphi's largest shareholder, with a 9.3 percent stake. Tepper bought Delphi shares four days after the Troy, Michigan-based company's U.S. operations filed for bankruptcy last October.
GM spokeswoman Renee Rashid-Merem, Delphi spokesman Lindsey Williams, Cerberus spokesman Peter Duda and Tepper all declined to comment.
Rights Offering
The nature of Cerberus's investment hasn't been decided, the people familiar said, partly because it depends on the structure of Delphi's reorganization. One possibility is a rights offering, in which holders of stock or debt are given the right to buy shares in a new issue at a discount, one of the people familiar with the discussions said. Investor Eddie Lampert used a rights offering to bring U.S. retailer Kmart Corp. out of bankruptcy.
Delphi's 6.5 percent note due in 2013 rose about 4.5 cents to 94.5 cents on the dollar, their highest price this year, to yield 7.1 percent, according to Trace, the NASD's bond-price reporting service. The debt traded at 50.5 cents on Jan. 3.
GM shares fell 22 cents to $32.91 at 9:40 a.m. in New York Stock Exchange composite trading. Delphi shares rose 14 cents to $1.87 in over-the-counter trading.
``We expect Delphi to survive the U.S. bankruptcy and thrive elsewhere in the world,'' Gillette said. Delphi, whose bankruptcy is for U.S. operations only, is profitable outside North America and derived about a third of last year's revenue of $26.9 billion abroad.
The company is profitable in Europe, South America and Asia, said Steve Gaut, a spokesman for Delphi in Paris. Delphi doesn't break out operating results by region because of differing accounting standards, he added.
Wage Cuts
GM, Delphi, its creditors and the United Auto Workers union are trying to agree on wage cuts and plant closings that would help Delphi become profitable again. GM Chief Executive Officer Rick Wagoner said on Oct. 4 that reaching an agreement without a strike is a top priority after GM decided not to pursue an alliance with Renault SA and Nissan Motor Co.
A strike would cripple production at Detroit-based GM, which depends on Delphi for thousands of parts such as radios and air conditioners. Delphi was spun off seven years ago.
In a union meeting last week in Detroit, UAW Vice President Cal Rapson said he'd met with Tepper about a possible bid, according to one participant in the meeting. Cerberus executives also met with Rapson, the person said. Rapson is the UAW's lead negotiator on Delphi issues.
David Thursfield, who ran Ford Motor Co.'s operations outside of North and South America until April 2004, is executive chairman of Cerberus's GDX Automotive, a supplier of automotive glass and weather-strip modules.
Delphi Debt
Delphi said in its bankruptcy filing that it had $22.2 billion in debt and listed GM as its biggest creditor. GM on July 31 filed a claim for more than $4 billion.
Delphi CEO Steve Miller asked a U.S. bankruptcy court judge in March for permission to void labor contracts and institute the lower wages. Leaders of the UAW, Delphi's largest union, have vowed to strike if the contracts are voided.
Miller, who joined Delphi in July 2005, also wants to close 21 of 29 U.S. manufacturing sites.
A court hearing on the wage negotiations is scheduled in New York for Oct. 19. Delphi and the UAW reached an accord earlier this year that resulted in the buyout or early retirement of 20,100 union workers who will leave the company at the end of the year. Delphi had about 33,000 U.S. hourly workers before the buyouts.
Cerberus and GMAC
Cerberus, named for the three-headed dog of Greek mythology, leads a group of investors that agreed in April to spend $7.4 billion for a 51 percent stake in General Motors Acceptance Corp., GM's finance unit.
Ross was dubbed ``The King of Bankruptcy'' by Fortune Magazine in 1998 for his role in buyouts in industries other investors have shunned. He is trying to form three publicly traded auto-parts companies making plastics, metal parts and safety components. Last month he bought two auto-parts makers for $305 million in Japan and Europe.
He previously acquired the European operations of bankrupt auto-carpet supplier Collins & Aikman Corp. He has said he is interested in buying the U.S. operations of the Southfield, Michigan-based company as well as the U.S. auto-interiors unit of Lear Corp., also based in Southfield.
Asahi Tec Corp., controlled by New York investment firm Ripplewood Holdings LLC, last month agreed to pay $1.2 billion for engine- and chassis-parts maker Metaldyne Corp.
Icahn has bought shares in Lear and bankrupt axle-maker Dana Corp. Auto entrepreneur Roger Penske, who owns Delphi shares, has expressed interest in buying the company's steering business.
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10/2/06
NEW YORK, Oct 2 (Reuters) - Bonds of bankrupt auto parts maker Delphi Corp. (DPHIQ.PK: Quote, Profile, Research) rose 3 to 6 points following a Wall Street Journal story that hedge fund Appaloosa Management may acquire a significant stake in the company.
Delphi's 6.5 percent bonds due in 2009 traded at 95 cents on the dollar, up 6 cents on the day, according to high-yield research firm KDP Investment Advisors.
Citing several people familiar with the discussions, the Journal said on Saturday that Appaloosa may be near an agreement that could give it up to a one-third stake in Delphi when it emerges from bankruptcy. For more, see [ID:nN30156349]
Appaloosa's investment suggests that bondholders will get at least par, or 100 cents on the dollar, for any bonds that are redeemed in a workout, Kip Penniman, credit analyst at KDP Investment Advisors, said in an e-mail message.
Equity owners are at the end of the line in claims on a company's assets in bankruptcy, so senior noteholders would have to be paid in full before Appaloosa recovered its equity investment.
Appaloosa, headed by billionaire David Tepper, bought a 9.3 percent stake in Delphi for pennies per share after Delphi filed for bankruptcy in October 2005. It would inject billions of dollars into Delphi for the increased stake, the Journal said.
"This is a very classic investment opportunity for a distressed investor because sentiment across the industry is very, very low," said Walter Morales, president of investment firm Commonwealth Advisors in Baton Rouge, Louisiana.
Under the proposal being considered, Delphi bondholders would have the option to invest new money into Delphi in exchange for larger stakes in the restructured company, the Journal said.
Delphi's bonds have surged from around 50 cents on the dollar in late December as the company succeeded in trimming its union labor force, which will reduce its costs when it emerges from bankruptcy, according to KDP.
More than 20,000 workers, or about 62 percent of Delphi's U.S. union work force, have accepted offers to leave the company, Delphi said last week. Analysts have said the departures reduce the likelihood of lengthy labor disruptions at Delphi, a possibility that had weighed on the bonds last year.
"And they are getting more interest from equity players for the exit, so the bonds definitely have made a pretty impressive rebound," said KDP market analyst Justin Monteith.
In addition to Appaloosa, major shareholders in the restructured company are expected to include hedge fund Harbinger Capital Partners, UBS AG and Merrill Lynch & Co., the Journal said, citing people involved in the talks. (Additional reporting by David Bailey in Chicago)
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9/30/06
Hedge fund seeks to increase stake in Delphi: WSJ
Sat Sep 30, 2006 8:49pm ET
Business News
CHICAGO (Reuters) - Hedge fund Appaloosa Management may be near an agreement that could give it up to a one-third stake in bankrupt auto parts maker Delphi Corp. (DPHIQ.PK: Quote, Profile, Research) when it emerges from court protection, The Wall Street Journal reported on Saturday.
Citing several people familiar with the discussions, the Journal said an agreement could come as soon as early October, although the complex plan could unravel before negotiations are completed.
Appaloosa, headed by billionaire David Tepper, bought 52 million Delphi shares, or a 9.3 percent stake, for pennies per share after Delphi filed for bankruptcy in October 2005. It would inject billions of dollars into Delphi for the increased stake, the Wall Street Journal said.
Delphi spokesman Lindsey Williams declined to comment on the report. Discussions between the different constituents are private and cover many different areas that ultimately lead to a reorganization plan down the road, Williams said.
Delphi has been negotiating for some time with creditors, former parent General Motors Corp. (GM.N: Quote, Profile, Research), the unions that represent its U.S. hourly workers and stockholders including Appaloosa. It hopes to emerge from bankruptcy by mid 2007.
On August 1, Delphi said it had signed a nondisclosure agreement with Appaloosa to evaluate a business arrangements that possibly could include restructuring or acquisitions.
Delphi in March outlined plans to cut thousands of U.S. unionized hourly workers and salaried workers worldwide, and drop several business lines, to reorganize. Delphi excluded international operations from the bankruptcy.
Delphi asked the bankruptcy court in New York for authority to reject labor contracts and thousands of parts contracts with GM if it can not settle matters out of court, but Judge Robert Drain has allowed Delphi to delay hearings to continue talks.
GM spokeswoman Gina Proia declined to comment on the report of a possible deal.
"We see these various court adjournments as an indication of good progress in the discussions," Proia said. "There is certainly more work to do, but we are encouraged so far."
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Wall Street Journal 9/30/06
Repair Job
Billionaire Investor
Drives Overhaul
Of Auto-Parts Giant
David Tepper's Hedge Fund
Seeks To Put Billions More
Into Bankrupt Delphi
'A Good Guy or Bad Guy?'
By IANTHE JEANNE DUGAN
September 30, 2006; Page A1
For weeks, senior auto-industry executives have been gathering at a Manhattan law firm to hammer out an agreement to bring auto-parts giant Delphi Corp. out of bankruptcy protection.
They have included Delphi Chief Executive Officer Robert "Steve" Miller and Frederick A. Henderson, chief financial officer of General Motors Corp., Delphi's former parent. But the man who has emerged as pivotal in the talks, according to several participants, is David A. Tepper, a blunt hedge-fund billionaire who has been a thorn in Delphi's side for months.
Mr. Tepper, 49 years old, is head of Appaloosa Management, a $4.5 billion hedge fund that owns 9.3% of Delphi's stock. Mr. Tepper, who grew up in a middle-class household in Pittsburgh, has gotten rich investing in America's broken companies and declining industries. He bought into the steel and coal industries when they slumped and picked up bargain-priced securities of firms tainted with asbestos suits.
"Are you a good guy or a bad guy?" his wife asked him one evening in May as they stood in the kitchen of their New Jersey home watching televised footage of auto workers protesting in front of federal bankruptcy court in Manhattan. Mr. Tepper says he told her he is not causing economic pain -- he is just capitalizing on it.
"These employees are facing an economic reality," he told her. "You can't manufacture profitably in the United States with these salaries. One way or another, these people will be displaced."
Mr. Tepper has been pushing a restructuring plan that could leave him in control of a far bigger stake in Delphi. After weeks of negotiations, the group is near an agreement under which Mr. Tepper would inject billions of dollars more into Delphi and wind up controlling up to one-third of Delphi's stock when it emerges from bankruptcy, people involved in the meetings say. An agreement would end a bankruptcy-court battle between Delphi, its stockholders and creditors, and GM, which still has significant financial ties to Delphi.
Mr. Tepper is betting he can make big money as Delphi cuts back its operations, which will be painful for some Delphi employees. Delphi wants to close many plants and lay off thousands of people. It also intends to cut wages and benefits.
The negotiations have not been completed, and the complex plan could come unraveled. Several people involved in the discussions say they expect an agreement to come perhaps by early October.
Delphi's Chapter 11 bankruptcy filing on Oct. 8, 2005, was the largest in a recent wave of car-related bankruptcies, making Delphi a prime symbol of Detroit's woes. Its efforts to emerge from court protection are being watched closely in Detroit. The company cranks out everything from air-bag triggers to satellite radios. It employed 177,000 people world-wide as of June 30, reported $26.9 billion of revenue last year, and is the biggest supplier of parts to GM. Some investors in Delphi claim that GM is still responsible for billions of dollars of Delphi liabilities.
Mr. Tepper is among a small fraternity of contrarian investors betting that the American car industry will return to profitability, much the way the steel industry did. New York-based investor Wilbur Ross, who made a fortune buying steel companies, has also invested in an array of auto-parts makers. Mutual-fund manager Michael Price has bought into Delphi and other parts companies. Billionaire investor Kirk Kerkorian has a large stake in GM.
These investors have become flash points in the debate over the future of the car industry. In a June speech in Las Vegas, the president of the United Auto Workers, Ron Gettelfinger, said bankruptcy reform was needed to stop employers and "bankruptcy vultures" from "lining their pockets with everything of value and uncaringly destroying lives, hopes, dreams and communities in the process."
Mr. Tepper's Delphi foray illustrates how large private investment funds increasingly are affecting the fates of large companies and their employees. Mr. Tepper's fund buys stock and bonds in ailing companies, then leans on them to hammer out restructuring plans that will make his investments worth more. The process can pit him against existing management, unions and stockholders.
Mr. Tepper bought Appaloosa's stake in Delphi for just $16 million several days after its Chapter 11 filing, an investment that some people involved in the talks describe as his admission ticket to Delphi's restructuring.
"Delphi is an important example of the kind of thing David Tepper does," says Mr. Price. "He makes a contrarian investment away from easy money and fights to unlock profits."
These days, Mr. Tepper declines to comment on the restructuring because he was given access to confidential financial information about Delphi in the talks. His comments for this article were made before that agreement last month.
Appaloosa occupies the first floor of a three-story brick building on Main Street in Chatham, N.J. Mr. Tepper often shuns his corner office for a cluttered desk on an open floor where a dozen traders work. On his desk sit three plastic pigs. He jokes that he rolls them for guidance on difficult trades. If all three snouts point down, in the eating position, it's a signal to buy.
"The media says that hedge funds are the new masters of the universe," he chuckles. "We're just a bunch of schmucks."
Mr. Tepper still lives in the two-story home he bought in 1990 for $1.23 million, according to real-estate records. He owns no vacation home. His kids attend public school. On weekends, he coaches his daughter's softball team at a municipal field. He says he feels out of place at his country club. "I'm just a middle-class dad trapped in a rich man's body," he says.
He grew up in a small brick house in a working-class section of Pittsburgh called Stanton Heights, the middle of three children. His father was an accountant, his mother a school teacher. His father, who died in January, "was not a warm and cozy guy," Mr. Tepper says. "He worked all the time. He was underpaid."
His mother, Roberta, now 74, says her husband worried constantly about money. He played the lottery, dabbled in stocks, and often visited casinos in Biloxi, Miss. Twenty years ago, he won a $715,000 lottery jackpot, which was paid out over two decades.
"We were all very quiet and shy kids," says Mr. Tepper's sister, Sheryl Weitman, 50. "We were the fat kids." Mr. Tepper rarely studied in high school, he says, but he enjoyed talking stocks with his father and began dabbling in the market.
When he went off to the University of Pittsburgh, he worked in the library and began trading risky stock options to pay his tuition, he says. "It was such a gamble," says his brother, Scott, 45. "I told him: 'Why don't you just go to Las Vegas?'"
His sister recalls: "David always said he'd be a millionaire by the time he was 30."
Mr. Tepper met his wife, Marlene, while working for a mutual fund in Boston. In the late 1980s, they moved to New York, where he worked for Goldman Sachs Group Inc. helping build a unit to buy and sell "junk" bonds, corporate debt securities that carry speculative ratings.
Although he was very successful, he was repeatedly passed over for partnership, he says. In the early 1990s, "distraught" about the situation, he quit as head of junk-bond trading, he says. After trading on his own for a few months at a spare desk in Mr. Price's office, he started Appaloosa. His clients included both institutional and individual investors.
Since it began, Appaloosa has delivered its investors an average annual return of 33.9%, after Mr. Tepper's 20% share of profits and 2% management fee are taken into account. But the returns have been volatile.
In 1998, Appaloosa lost hundreds of millions of dollars when Russia defaulted on its currency and global debt markets were thrown into chaos. It was up 67% in 2001, then fell 25% the following year when junk bonds crashed. In 2002, Mr. Tepper bought into the bond slump, building positions in Conseco Inc., an insurance company, and Marconi Corp., a British telecommunications company. The following year, the fund returned more than 150%. Institutional Investor magazine estimated that Mr. Tepper took home about $510 million, and ranked his compensation second only to famed hedge-fund manager George Soros.
Until then, he and his wife had kept the scope of their wealth a secret from friends, relatives and even their three teenage children. "Everything changes when people realize how much money you have," he says. "I didn't want my kids to get spoiled."
In 2004, he contributed $55 million to Carnegie Mellon University's school of industrial administration, where he got his graduate degree. It is now called the David A. Tepper School of Business. It stunned some relatives. "Suddenly, everywhere -- in the supermarket, at the bank -- everyone was asking me, 'Are you related to David Tepper?' " says his uncle, Bernard Tepper, a former bakery owner in Pittsburgh.
"There have been times when I opened the mailbox and found a nice check," his sister says. "I call my mother and say, 'Check your mailbox!' Then we call Scott and say, 'Check your mailbox! David is having a good year!' "
Last year, he hired Ashlee Simpson to sing at his youngest daughter's bat mitzvah. And he bought his elder daughter a Lexus for her 17th birthday this year. "She's getting all A's," he says. His 19-year-old son asked him for money for a new Acura. Mr. Tepper says he told his son he would have to share the cost because his grades were too low.
Jon Corzine, his former Goldman boss, stopped in to see him during his successful campaign for the U.S. Senate. Mr. Tepper met him, but didn't contribute. "Maybe he was the reason I was passed over for partner," Mr. Tepper says. Mr. Corzine, now New Jersey's governor, says through a spokesman that he "was a big fan" of Mr. Tepper and didn't stand in the way partnership.
"In his position, you get to the point where people only call for money," says his sister. "It's incredibly difficult figuring out...who would be your friend if you weren't David Tepper the billionaire."
As the corporate scandals earlier this decade died down and competition among bottom-fishing investors for deals intensified, it became harder to find profitable niches. Mr. Tepper began studying the troubled auto industry.
Although more than six years have passed since Delphi was spun off from GM, questions remain about which company is responsible for pension and health-care liabilities for Delphi retirees. GM had agreed to cover them if Delphi was unable to pay, but Delphi had later agreed to release GM from the obligation. After Delphi sought bankruptcy protection -- listing $22 billion in debt and $17 billion in assets -- GM claimed in court that Delphi owes it money in connection with these liabilities.
GM's claim caught the eye of Mr. Tepper. He believed GM had no right to the money, and that its claim would be thrown out in court. Getting rid of that claim, he reasoned, would significantly narrow the gap between liabilities and assets and would allow Delphi to pay off its debts. GM has called the claims valid.
He saw other pluses. A big chunk of Delphi's revenues came from overseas, and those operations were not part of the bankruptcy filing. Moreover, the core of the company's business was electronics, which he felt would remain integral to making cars.
Often, holders of common shares wind up with nothing in bankruptcy reorganizations. But if this asset-liability gap could be narrowed, Mr. Tepper figured, Delphi's shares would be worth something.
"I saw a 10% chance of losing everything and a 90% chance of making money," Mr. Tepper said earlier this summer. "So, I had to roll the dice."
Days after the bankruptcy filing, he scooped up nearly 10% of the stock for about $16 million, and immediately began agitating to ensure that shareholders emerged intact. He blasted Delphi officials in letters, calling the bankruptcy filing a "sham." He fought to form a court-sanctioned committee of shareholders so they would have a say in the restructuring. A federal bankruptcy judge approved the formation of the committee, but a federal bankruptcy trustee left Mr. Tepper off it.
Earlier this year, Mr. Tepper decided on a friendlier approach. He called Delphi's chief executive, Mr. Miller, and invited him to Appaloosa's offices to talk. During their meeting, they began laying the groundwork for the current talks. Mr. Tepper agreed to stop trading Delphi shares in exchange for confidential financial information about the company.
In recent months, Mr. Tepper has raised $2 billion from his investors to inject into Delphi. Under the proposal being considered, the company's shareholders and bondholders would be given the option to invest new money into Delphi in exchange for a larger stakes in the restructured company, people involved in the talks say. Appaloosa is prepared to pump in billions of dollars, and the size of its future stake would depend on how much Delphi's other shareholders and bondholders invest, these people say.
The new money would be used to pay off debts and liberate Delphi from massive health-care and pension liabilities. In addition to Appaloosa, major shareholders in the restructured company are expected to include hedge fund Harbinger Capital Partners, UBS AG and Merrill Lynch & Co., people involved in the talks say.
Write to Ianthe Jeanne Dugan at ianthe.dugan@wsj.com1
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9/26/06
Automakers
Delphi Buyout Tally
By TSC Staff
9/26/2006 4:11 PM EDT
URL: thestreet.com
Delphi (DPHIQ) said 12,400 workers agreed to retire and 1,400 took a buyout offer.
The bankrupt auto parts maker had offered some workers $35,000 to retire and others as much as $140,000 in buyouts. Delphi said 85% of eligible United Auto Workers union members took the retirement option.
Delphi's former parent, GM (GM) , has agreed to assume the financial obligations related to the lump sum payments to be made to eligible Delphi U.S. hourly employees accepting normal or voluntary retirement incentives. Additionally, GM will fund certain post-retirement employee benefit obligations related to Delphi employees who transition to GM under the plan for purposes of retirement as well as half of employee buyout costs.
News of the Delphi attrition offers come as the U.S. auto industry undergoes wrenching change. Detroit's Big Three have announced steep production cutbacks in a bid to accelerate their return to profitability, exacting a hefty cost on their workers and suppliers.
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Automakers
Delphi, Union Agree to Buyout Plan
By TSC Staff
6/17/2006 11:47 AM EDT
URL: thestreet.com
Delphi (DPHIQ.PK:Other OTC) has agreed on a buyout plan with its second-largest union, according to a media report.
The auto parts supplier, which has been operating under Chapter 11 bankruptcy protection since October, announced the agreement with the International Union of Electronic Workers-Communications Workers of America and General Motors (GM:NYSE) , Delphi's former parent and biggest customer, the Associated Press reported.
A week ago, Delphi, which is struggling to cut costs through employee reductions, announced a similar buyout package with its largest union, the United Auto Workers union.
GM has agreed to provide financial support under the IUE-CWA plan, which would have to receive bankruptcy court approval, according the AP.
About 8,000 hourly workers represented by the union will be eligible. They may opt for buyout packages ranging from $40,000 to $140,000. Some will be be offered a lump sum of $35,000 to retire. The plan also will allow as many as 3,200 Delphi employees to receive retirement benefits from GM.
Delphi shares finished the week at $1.73. GM stock rose a penny Friday to $25.60.
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Automakers
Delphi, Union Reach Buyout Pact
By Nat Worden
TheStreet.com Staff Reporter
6/9/2006 5:20 PM EDT
URL: thestreet.com
Delphi (DPHIQ:NYSE) announced an agreement with General Motors (GM:NYSE) and the United Auto Workers union late Friday to expand retirement incentives to its hourly workers and adjourn courtroom hearings on its bid to end certain union agreements until August.
The union called Delphi's decision to adjourn the hearings in its bankruptcy proceedings a "step in the right direction." The bankrupt auto parts supplier, a former subsidiary of GM, has been pushing for wage cuts for its hourly workers in order to lower costs that the union found objectionable. The conflict threatened to end in a labor strike that had the potential to cripple GM's operations.
"They still have a lot more to do here, but this is a good step that shows that everyone is at the table," says Morningstar analyst John Novak. "I don't think anybody has to worry about a strike here in the next couple of weeks."
The union said its members working for Delphi with a tenure of 10 years or more at the auto parts maker will be offered a lump-sum, cash payment of $140,000 to sever all ties with the company. Workers with less than 10 years of service will be offered $70,000, and those hired under a recent employment agreement before March 22 will be offered $40,000. GM workers, along with some Delphi workers, were offered a similar option in March.
"Ultimately, what they're trying to do here is reduce the Delphi workforce, and wherever that ends up will determine how far they can go with the wages," says Novak. "So, there's a lot of moving parts, and it looks like concessions are being made on all sides."
In addition to the buyout offers, the UAW said employees with more than 26 years of tenure and less than 27 years will be eligible for a voluntary early retirement plan, with gross monthly wages of $2,750.
Shares of GM spiked after the announcement, closing up 52 cents, or 2.1%, to $25.35.
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Hedge Funds
Shareholder Activism Comes to Chapter 11
By Emma Trincal
Staff Reporter
4/6/2006 10:13 AM EDT
URL: thestreet.com
When a company nears insolvency, a bankruptcy reorganization is a tool creditors use to protect their interests. But what happens if bankruptcy is wielded as a weapon?
That's the basic question underlying the latest frontier of shareholder activism, in which stockholders -- who are usually big losers in Chapter 11 proceedings -- try to defend themselves through the formation of court-recognized equity committees.
Shareholders are usually wiped out when a company seeks bankruptcy protection. That's because their claims come behind those of anyone who has lent the company money, such as bondholders and preferred stockholders. It's part of the bargain stockholders live with: Their upside is theoretically unlimited, but few tears will be shed for them in the event a company goes under.
Still, some hedge fund activists say that system is ripe for abuse. Called distressed investors, these pros take positions in risky stocks -- even one where the threat of bankruptcy looms -- because they see value in the company after its debts are paid. Part of their argument is that creditors sometimes force bankruptcy on companies when a less radical restructuring would suffice. A shareholder committee makes sure creditors aren't making out too well in the reorganization.
"At the negotiation table, it's possible that a company could be found solvent," says Robert Stark, bankruptcy partner at law firm Brown Rudnick. "The enterprise value is to a degree subject to opinion."
Getting a judge to appoint an equity committee is a big deal for stock investors. "Without an equity committee, shareholders get nothing," says one hedge fund manager specializing in distressed investing. "With it, shareholders get something. How much? It depends on the valuation and the negotiation."
Recently, David Tepper, founder of the hedge fund Appaloosa Management, made headlines after seeking and obtaining the creation of an official equity committee for Delphi (DPHIQ:Pink Sheets) . The term "official" carries some weight here. It means that the company pays for the legal representation of the shareholders.
"By getting an official equity committee, Tepper was very clever. He got somebody else to pick up his legal bills," says a distressed hedge fund manager. Tepper is also petitioning for the creation of an equity committee with Dana Corp. (DCNAQ:Pink Sheets) .
Experts say that the size and the complexity of bankruptcy cases play a big part in the emergence of equity committees. "It's a trend," says Stark. "Since Enron, WorldCom MCI and Adelphi, cases are getting bigger and more complex, and there has been recognition that shareholders should have rights."
Take Mirant (MIR:NYSE) . The Atlanta-based energy company filed for bankruptcy in July 2003, and within two months an equity committee was established. "Equity investors got warrants within months of the bankruptcy filing, and those warrants turned out to be worth a lot of money," notes a distressed hedge fund manager.
"There is a shift taking place. There were equity committees in the past, but because of the success of Mirant and some other cases, the courts are more open-minded to appoint equity committees," says another distressed hedge fund manager.
Some of those cases include Loral Space and Communications (LORL:Nasdaq) , Trump Hotels and Casinos (DJTCQ:OTCBB) , Interstate Bakeries (IBCIQ:Pink Sheets) and Federal-Mogul (FDMLQ:OTCBB) .
Distressed investing isn't for amateurs. It's a game reserved for sophisticated hedge funds and their bankruptcy lawyers. But some piggybacking is already starting to take place.
That was the case on March 22, when Tepper obtained an equity committee for Delphi. The stock closed at 88 cents the day before and moved up to $1.02 on the announcement. Even if the stock is now down in the 65-cent range, the equity committee is seen as a first step toward value preservation. That's because courts will allow a committee only if there is enough value to cover all the debt and potential value to be given to the shareholders.
"An equity committee gives shareholders a voice. Unless shareholders are unjustified in getting a voice, usually it raises the stock price," says Dan Arbess, founder of Xerion Capital Partners, a distressed hedge fund. He cites the case of Riverstone Networks, the network-router company in which he got involved as an activist and which recently filed for bankruptcy. "In the Riverstone case, the formation of an equity committee and ensuing auction between Lucent (LU:NYSE) and Ericsson (ERICY:Nasdaq) increased value to the shareholders by almost 30%," Arbess says. The auction took place last month, and Lucent bought Riverstone's assets for $210 million.
Some naysayers say that shareholder activism in bankruptcy cases reflects the triumph of lawyers over common sense. "It doesn't make legal sense at all," says a hedge fund manager. "The debt holders are entitled to the assets of the company. If there are enough assets, the company did not need to go bankrupt in the first place. If there is not enough cash, then all the assets should go to the debt."
That's precisely the point activists make. To them, bankruptcies are not final, and sometimes weren't even necessary.
Some activist shareholders -- for instance Tepper in the case of Delphi -- believe their company was rushed into bankruptcy prematurely to the detriment of the shareholders and to the benefit of the debt holders. If there is money left in the company, they will fight to unlock value.
Another argument surrounds the claims on a bankrupt company's assets -- claims that activists believe are often overstated. Many bankrupt companies tend to be old manufacturing businesses with pensions and liabilities. A major thrust of this new breed of activism is that the liabilities can be shifted and ultimately removed from the balance sheet through bankruptcy litigation, leaving value for the shareholders. In the case of Delphi, activists believe that a good deal of the liabilities can be shifted through negotiation back to General Motors (GM:NYSE) .
Another example is Solutia (SOLUQ:OTCBB) , a chemical company that was originally spun off from Monsanto (MON:NYSE) . Litigation claims were transferred to Solutia when the business was spun off. Recently, Arbess and a group of creditors put pressure on Solutia's management. As a result, Monsanto agreed to take back certain liabilities.
Tepper is also working on some of those liabilities issues on the Delphi front. He is challenging the "indemnity" GM plans to seek from Delphi as compensation for the money it spends on its former unit's benefits. If Tepper succeeds, Delphi's shareholders may be able to squeeze some value out of the bankrupt auto-parts company. His investment will be worthless if he doesn't. |
