Bankrupt supplier Delphi Corp. has secured a $50 million cash infusion from former parent General Motors and seeks to eliminate $1.1 billion in employee and retiree benefits.
In various filings last week with U.S. Bankruptcy Court in New York's Southern District, Delphi said deteriorating conditions in the auto industry have caused it to take actions to remain solvent that it never intended.
At a hearing Feb. 24, the electronics supplier will seek court approval for its plans to eliminate benefits. By Feb. 27, Delphi expects to file a new reorganization plan that recognizes the impact of collapsing sales in global auto markets.
Delphi said that modified business plan probably will list its enterprise value at "substantially below" the worst-case $6.3 billion it estimated in October. The supplier cited "dramatic declines" since October in the auto industry.
Its enterprise value "may be equivalent to, or even less than," the worth of its post-bankruptcy obligations. Delphi's debts include a $4.35 billion bankruptcy loan and about $1 billion in loans from GM.
The $6.3 billion was already less than half of its $12.8 billion estimated value a year ago. But the October enterprise value assumed 2009 production of 14.2 million light vehicles by all automakers in North America, Delphi said. Last month, GM, Delphi's largest customer, predicted that amount would sink to about 10.5 million.
To cope, Delphi wants to eliminate health care and life insurance benefits for salaried retirees and certain payments to a retirement savings program for some salaried employees. Those moves would save more than $70 million annually and would erase more than $1.1 billion in liabilities from Delphi's balance sheet, the supplier said. If the court approves, the benefits will end after March 31.
Separately, Delphi said it received on Jan. 30 a $50 million advance on the $300 million GM had agreed to give it by June 30. GM also has until Feb. 27 to agree to give Delphi an additional $50 million by the end of June, bringing those payments to $350 million. If GM does not agree to the increase, then it must give Delphi $50 million of the $300 million by Feb. 27 and allow Delphi's minimum liquidity to drop from $100 million to $50 million without violating the companies' agreement.
Delphi filed Chapter 11 bankruptcy in 2005 and was ready to exit in April. But equity partners backed out, leaving the supplier scrambling for a new plan.