Delphi Corp., Troy, Mich., reached an agreement with five buyout firms that will invest up to $3.4 billion in the auto parts manufacturer to support its reorganization, enabling Delphi to retain its U.S. defined benefit plans, confirmed spokeswoman Claudia Piccinin. The group of investors - Appaloosa Management, Cerberus Capital Management, Harbinger Capital Partners, Merrill Lynch and UBS Securities - will pump between $1.4 billion and $3.4 billion into Delphi, which filed for Chapter 11 bankruptcy protection in October 2005, in exchange for company stock that will be issued in 2007, according to a company filing with the SEC.
The deal will allow Delphi to take steps toward funding its pension plans to the extent required by ERISA. Delphi's pension plans had an estimated $8.7 billion in assets as of Sept. 30, 2005, according to Pensions & Investments data. Delphi has said the plans were underfunded by $4.1 billion.
Delphi's agreement "will include an arrangement to fund approximately $3.5 billion of its pension obligations," according to the filing. As part of the transaction, General Motors Corp., Delphi's former parent, could assume up to $2 billion of Delphi's net pension obligations. The funding will also allow Delphi to make up for required pension contributions that were not made during the Chapter 11 process, according to the filing.
"While other major Chapter 11 labor transformation cases have regrettably had to terminate their pension plans as part of their restructuring, Delphi has expended a great deal of effort and energy to save our employees' pensions," said Steve Miller, Delphi chairman and CEO.
In April, Delphi announced it would freeze its pension plans as part of its strategy to emerge from bankruptcy protection.