Delphi is tapping JPMorgan, Citigroup and Deutsche Bank for a new $4.5 billion debtor-in-possession loan while shareholding hedge funds battle it out to aid in the company's refinancing plan. Delphi announced Dec. 18 it was taking a $3.4 billion equity commitment from an investor group that includes Cerberus Capital Management and Appaloosa Management, the company's largest shareholder. Last Thursday, Highland Capital Management, the company's second largest shareholder, announced a proposal to invest $4.7 billion in the bankrupt company, according to news reports. A Delphi spokeswoman declined to comment on the bid and a call to a Highland official was not returned.
The planned credit facility will refinance the company's existing DIP, pre-petition revolver and term loan facilities. It will consist of a $1.75 billion revolver, a $250 million first-lien term loan and a $2.5 billion second-lien term loan, according to a filing with the Securities and Exchange Commission. Pricing on the first lien is expected to be LIBOR plus 2 1/2% and pricing on the second lien will be LIBOR plus 3 1/4%, according to the filing. It is expected to hit the market in early January, according to a banker.
"Back in the day you got a real premium to pay for a DIP," said one investor. He commented that it's one thing to invest in a DIP for a poor company in a decent industry, but a poor company in a poor industry is another. Investors had a hard time swallowing the $175 million Deutsche Bank-led exit financing for Meridian Automotive Systems last week. Pricing on the credit was bumped up 50 basis points to LIBOR plus 6% and an OID of 98 was added to get it through the market, according to a banker.
Delphi's existing debt includes a $1.825 billion pre-petition revolver and a $1 billion term loan led by Citigroup and JPMorgan. The credits are priced at LIBOR plus 5% and LIBOR plus 6 1/2%, respectively (CIN, 3/24). Delphi's existing DIP loan, also led by Citigroup and JPMorgan, consists of a $1.75 billion revolver and a $250 million term loan, both priced at LIBOR plus 2 3/4% (10/14/2005).
The company announced Dec. 18 it had accepted a proposal for an equity investment by Appaloosa, Cerberus and Harbinger Capital Partners, as well as Merrill Lynch and UBS Securities. The group plans to invest up to $3.4 billion in preferred and common equity to support the company's reorganization. The investors will commit to purchase $1.2 billion of convertible preferred stock and approximately $200 million of common stock in the reorganized company. Additionally, the investors will commit to purchase any unsubscribed shares of common stock in connection with an approximately $2 billion rights offering that will be made available to existing common stockholders. Highland's offer proposed that all existing stockholders participate in a $4.7 billion rights offering, with no convertible preferred shares, according to a Bloomberg article.
The company expects to emerge from Chapter 11 in mid-2007, according to a company spokeswoman. It originally filed for bankruptcy Oct. 8, 2005 and announced its plan of reorganization March 31. The bankruptcy court has scheduled a Jan. 5 hearing to consider approval of the investment and DIP refinancing.
Delphi's bonds dropped three to four points last Thursday. The 6.5% '13 bonds fell three-and-a-half points to 107, while the 6.5% '09 bonds fell three points to 111, according to General Associates. Under Delphi's reorganization plan, up to $1.7 billion of unsecured claims will be paid back fully with cash and common stock in the reorganized company. Calls to Cerberus and Appaloosa representative were not returned.