Tuesday, July 28, 2009


A few weeks ago bankruptcy judge Robert Drain derailed a government sponsored plan for Platinum Equity and GM to take over Delphi and have it emerge from bankruptcy. Delphi is a former GM subsidiary that filed for bankruptcy several years ago. It had been languishing in Chapter 11 limbo unable to put together a confirmable plan of reorganization. The government sponsored plan offered to pay the DIP lenders only 20 cents on the dollar. DIP loans are generally assumed to be money good and there are very few instances over the past 20 years where DIP loans were not paid in full.

Judge Drain ordered an auction to take place for the company. The auction was won by the DIP lenders who bid in their debt. They had $3.4 billion of loans due from Delphi. For another party to win the auction, they would have had to bid more than the face value of the lenders' loans. According to the WSJ, there will be a hearing to approve the sale on Wednesday. It may be interesting to follow since this case has had many twists and turns.

Should the DIP lenders have the sale approved, the fun will only just begin. They will immediately have to work with management to make sure they have a leadership team in place that can ensure that Delphi will be viable for the foreseeable future. These turbulent automotive times require the best leadership available in management and at the board level.

Cheers (back from Scotland), Mike

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