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Delphi To Get $3.4 Billion From Private Equity Group

Auto parts supplier Delphi laid out a road map for its reorganization on Monday that includes up to a $3.4 billion investment from a private equity group in the bankrupt auto parts maker, potential creditor recoveries and an executive succession plan.

A private equity group led by Appaloosa Management and Cerberus Capital Management will invest up to $3.4 billion in Delphi under plans announced on Monday, giving the investors a large stake when Delphi emerges from bankruptcy.

Delphi also said Chairman and Chief Executive Steve Miller will step down as CEO on Jan. 1 and be succeeded by President and Chief Operating Officer Rodney O'Neal. O'Neal will serve as president and CEO when Delphi emerges from bankruptcy.

Delphi, which filed a framework agreement for a plan of reorganization on Monday, said the deal is contingent on the company reaching agreements with former parent General Motors and automotive labor unions.

The United Auto Workers had no immediate comment.

Delphi, which filed for bankruptcy in the United States in October 2005, has outlined plans to cut thousands of hourly and salaried workers, close or sell 21 of 29 U.S. union plants and drop several business lines to reorganize.

In court documents, the company said it has much to complete, but called the investment and the framework, "a major milestone in Delphi's reorganization."

The investor group also includes Harbinger Capital Partners Master Fund I Ltd., Merrill Lynch & Co. and UBS Securities LLC. The group, or Delphi, can terminate the agreement if Delphi does not reach deals with GM and the unions by Jan. 31.

Troy, Michigan-based Delphi said the investors and GM have signed off on the proposed reorganization plan. Delphi said it will seek bankruptcy court approval of the investment and plan framework on Jan. 5.

Miller, who joined Delphi in mid-2005 to guide the restructuring, will remain an executive chairman through the company's emergence from bankruptcy, which Delphi has said it expects in the first half of 2007.

"It's kind of a breakthrough in the process and, although it needs some approvals yet, it certainly seems very detailed in its approach," said Pete Hastings, corporate bond analyst at
Morgan Keegan.

STOCKHOLDER RECOVERY, PENSIONS FUNDED

Hastings said he expected the deal to be perceived as positive for GM, as it appears to further reduce the risk of a costly work stoppage from the major supplier that GM spun off in 1999.

And Miller's planned exit as CEO may ease tensions with the UAW leadership which had accused Miller of using stonewalling tactics and abusing the bankruptcy process.

Since August, Delphi has been in talks with GM, creditors, potential investors and the labor unions over its makeup after bankruptcy.

The investors committed to buying $1.2 billion of convertible preferred stock, about $200 million of common stock in the reorganized company, and any unsubscribed common shares after a $2 billion rights offering to stockholders.

Current stockholders would receive a recovery in the proposed reorganization plan and funding gaps in the company's U.S. pensions would be resolved as well to preserve the accrued pensions of U.S. salaried and hourly workers, Delphi said.

Senior secured debt would be refinanced and paid in full and all allowed administrative and priority claims would be paid in full, Delphi said.

Trade and other unsecured claims, as well as unsecured funded debt claims and subordinated debt claims would receive cash or common stock in the reorganized Delphi.

Current stockholders would receive $135 million of stock in the reorganized Delphi, or 3 million shares, and rights to buy 57 million more shares at $35 per share. The rights would be transferable by the original eligible holders.

GM would receive 7 million shares of common stock in the reorganized Delphi, $2.63 billion in cash, and an unconditional release of alleged Delphi claims against GM. Other GM claims would be satisfied as ordinary business, Delphi said.

GM said Monday that obligations and costs it would assume to resolve the issues, along with the contemplated recoveries, were consistent with its expectations for total exposure to the bankruptcy of $6 billion to $7.5 billion.

Also on Monday, Delphi sought court approval to enter into a $4.5 billion replacement debtor-in-possession financing to cut costs by about $8 million per month.

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