A New York bankruptcy court has given Delphi greater leeway to negotiate fresh contracts with its suppliers, in a significant victory for the ailing US car parts manufacturer.
But the court also put several safeguards in place to reassure nervous suppliers that the parts maker would not gain inordinate control over their businesses.
Delphi, which filed for Chapter 11 bankruptcy protection on October 8, applied to the court for the right to negotiate terms with suppliers whose contracts come to an end on December 31, without seeking legal approval for each new agreement. Delphi wanted to be able to repay up to 75 per cent of debts to 8,000 important suppliers in return for new two-year supply contracts with more favourable credit terms. The debts otherwise would not be paid until the company emerges from bankruptcy.
The official committee of unsecured creditors, and Wilmington Trust, which represents bondholders, had opposed Delphi’s application, on the grounds that it would be too expensive – costing as much as $1bn – and did not give them sufficient control. Many suppliers also objected to the original proposal on the grounds that the new contracts would have been imposed automatically.
Early this week, Delphi struck a deal with the creditors’ committee to assuage some of those worries, paving the way for Tuesday’s approval by Judge Robert Drain. In the new proposal, the extensions are no longer automatic: suppliers are only bound to them if they give their written consent – a provision that suppliers had been campaigning for.
The creditors’ committee will also be allowed to monitor the money paid, in connection with the contract extensions.