ROAD TRIP
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Delphi's story goes back to 1999, when it was carved out of GM, morphing overnight into the country's largest auto parts manufacturer. Unfortunately, the terms of the spin-off locked Delphi into the highest cost structure in the business. The company was handcuffed by contracts for moneylosing product lines for which GM was the sole customer and Delphi the sole supplier. GM had also committed Delphi to retaining the automaker's expensive contracts with its former workers. Delphi's union employees earned $65-$70 (£40-£45) an hour, a wage double to triple those of its rivals. GM, in turn, guaranteed its former workers' benefits.
That handshake agreement underscored a central tension throughout the bankruptcy: GM wasn't just a creditor, but a codependent. As a result, GM's lawyer, Jeffrey Tanenbaum of Weil Gotshal & Manges, found himself working as often for Delphi's interests as for GM's. With Tanenbaum's help, in September 2007, after nearly two years of talks, most longtime Delphi workers accepted GM-funded financial severance deals. Delphi could now staff its assembly lines with new workers at $14-$18 (£9.30-£12)anhour.
Increasingly, Butler was forced into a more passive role as the two parties with the real power over Delphi's future locked horns: a few hedge fund DIP lenders holding a contractual death grip on Delphi and the US Government, via the task force, as the real, albeit indirect, provider of capital. The lenders thought that the task force undervalued Delphi's assets. The task force viewed Delphi as relevant only to the extent that it affected GM. "The goal was to bring [Delphi] to a quick conclusion," says then task force member Matthew Feldman, "and GM was not going to be an open faucet."
The DIP lenders "were slackjawed" at the news that they had been cut out so completely, recalls one lawyer who was present. Without getting a share of ownership in the new Delphi, the DIP lenders' recovery would be capped at a pittance of what they believed Delphi was really worth. At a hearing on 10 June, [Marc Abrams] demanded an open auction, slamming the Platinum deal as a sweetheart sale orchestrated by the task force and GM and rammed down lenders' throats. Dechert's Glenn Siegel, representing Elliott Management, told Dram that a critical mass of DIP lenders, including Elliott and Silver Point, were ready to prepare a competing bid - a 'pure credit' bid, where the lenders offer no new cash, just the $3.5bn (£2.3bn) value of their debt -if he would allow it. If another bidder topped their bid at auction, well, that was fine, too.
