Delphi Corp.'s pre-petition bank debt fell on word that banks are in talks with the company to refinance the debt. The talks come after Delphi brokered a landmark deal with General Motors and its union, the United Auto Workers, to offload some of its burdensome employee benefit costs. Delphi's revolver fell a point-and-a-half to 104, while its term loan was down a point to 106.
The debt fell because it does not contain call protection, traders said. It had been trading four to five points higher than Delphi's debtor-in-possession loan, which is trading in the 101-102 range. But despite talk of a refinancing, some market participants were cynical that a deal would actually get done. One trader pointed out that a refinancing has never been done on pre-petition debt and that it would be virtually impossible to obtain permission from all holders of the debt to reprice it. The stumbling block is Delphi's $2 billion DIP loan, which has priority over all other debt. The trader said if a refinancing was to be done, it would most likely be on the DIP loan, which also contains no call protection. Another market participant was more optimistic, however, that it could get done and said just becasue it hasn't been done before isn't a good reason to discount the possibility.
Delphi has a $1.825 billion pre-petition revolving credit, priced at LIBOR plus 5%, as well as a $1 billion term loan priced at LIBOR plus 6 1/2%. Citigroup and JPMorgan lead the revolver, as well as the term loan. Delphi's DIP loan is priced much lower than the pre-petition debt. The $1.75 billion revolver and $250 million term loan are both priced at LIBOR plus 2 3/4%. A Delphi spokesman declined to comment on the refinancing talks, as did a JPMorgan spokesman. A spokeswoman at Citigroup did not return calls.
The company has been in talks with GM and its union for several months to broker a deal. One of the biggest concessions is a plan to allow UAW-represented Delphi employees to take early retirement. Certain employees may be offered a lump sum payment of $35,000 to retire. GM has agreed to assume the costs of the early retirement program. Approximately 13,000 hourly employees may be eligible under the plan. Another 5,000 UAW-represented employees will have the option to take up employment at GM. The auto maker will also pay certain post-retirement benefits of Delphi employees moving back to GM. Delphi has approximately 33,000 employees in the U.S. The agreement is subject to a number of conditions, including the approval of the U.S. Bankruptcy Court. A hearing is set for April 7.
