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Delphi Gets $4.7 Billion Refinancing Offer From Highland Capital

Highland Capital Management proposed a refinancing plan worth up to $4.7 billion to Delphi Corp.'s board on Thursday, competing with a plan already accepted by the nation's largest auto parts maker earlier this week.

Analysts said the move was further evidence that Delphi has a future after it emerges from Chapter 11 bankruptcy protection.

On Monday Delphi said an investor group led by Appaloosa Management and Cerberus Capital Management would spend as much as $3.4 billion to help the company out of bankruptcy. Delphi filed for bankruptcy protection in October 2005.

In a letter to Delphi's board, Dallas-based Highland Capital, a hedge fund that owns 8.9% of Delphi, said it opposed the earlier plan and outlined its own proposal.

Highland Capital said in a statement that its plan was "fair to all groups that currently make up Delphi's capital structure" and would promote "good and independent corporate governance for the company."

Delphi spokesman Lindsey Williams said the company had no immediate comment. Appaloosa and Cerberus didn't return calls for comment.

Craig Fitzgerald, an industry analyst with Plante & Moran, said the Highlands proposal provided further evidence that Delphi would emerge from bankruptcy "good-sized, focused and competitive."

Highland has offices in New York and London and currently manages more than $28 billion in assets, according to its Web site.

Under Monday's deal, Appaloosa, Cerberus and Harbinger Capital Partners Master Fund I, as well as Merrill Lynch and UBS Securities, would invest a minimum of $1.4 billion and a maximum of $3.4 billion in the struggling company in exchange for common and preferred stock that will be issued in the first half of next year.

Of the new investors, Cerberus and Appaloosa are the largest under the plan announced Monday, with Appaloosa already holding 9.3% of Delphi's current stock. Delphi had said the new investors would buy 30% to 72% of Delphi's new stock, depending on how many current stockholders decide to exercise their option to buy the new stock.

Highland Capital said the deal was unfair in part because some debt holders would receive cash and equity worth more than 100 cents on the dollar at the expense of common stockholders and would give Appaloosa and Cerberus control of Delphi's board by allowing them to name six of 12 directors.

Under Highland Capital's plan, existing stockholders will be able to participate in a $4.7 billion rights offering. All existing stockholders with more than 0.5 percent of the common shares would have the right to purchase any unsubscribed shares in the rights offering. Terms as proposed for the negotiated deal between General Motors and Delphi would remain the same, Highland Capital said.

GM spokeswoman Renee Rashid-Merem declined immediate comment Thursday, saying the automaker had seen few details of the new proposal. Under the earlier plan, GM would get 7 million -- or 5% -- of the 135.5 million new Delphi shares issued to shareholders.

GM has estimated that it is liable for $6 billion in Delphi employee benefit costs, and Delphi has said GM may take on as much as $2 billion of its pension obligations.

Mike Wall, an auto analyst with CSM Worldwide in Grand Rapids, said the flurry of interest speaks well for the prospects of the auto parts supplier and shows that Delphi still holds value.

"There's a lot of increasingly automotive expertise coming into play here," Wall said. "These aren't simply big billionaires chasing a quick and easy buck here. I think these are some very interesting and potentially strategic buys."

Delphi said Monday's agreement was part of a plan to emerge from bankruptcy protection by the second quarter of 2007. A reorganization framework agreement, signed by Delphi, the investors and former parent GM, was included in the deal.

Those agreements still must be approved by a federal bankruptcy judge in New York, where a hearing was scheduled for Jan. 5. But Highland Capital said Thursday that Delphi should have more time to consider its options.

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