Delphi Update-4

"The Pension Benefit Guaranty Corp. agreed to take on $6.2 billion in pension liabililies from bankrupt auto supplier Delphi Corp., putting in place a key piece in the bailout of the car industry but renewing pressure on a government agency facing hudge burdens as more companies fail. ... The pension rescue is the PBGC's second-largest ever, ranked by dollars, after that of United Airlines in 2005, which totaled $7.5 billion. ... Still, Delphi faces other formidable challenges. Lenders financing Delphi's stay in court have challenged the government's plan to move its assets to private-equity firm Platinum Equity calling it a 'secretly negotiated deal.' The plan, in which [General Motors] would provide funds alongside Platinum, would pay off lenders at about 20 cents in the dollar. The lenders say the payoff is unfairly low, since bankruptcy-court loans, known as debtor-in-possession financing, are typically paid back in full. Platinum has maintained it made the best offer. ... For the pension agency itself, Delphi could be just the beginning. About 135 companies have filed for bankruptcy this year, more than double the number for all of 2008. ... At a Senate hearing in May, Vince Snowbarger, PBGC's acting director, said the agency had enough funds to meet its obligations for many years because beneficiaries are paid out over the beneficiaries' lifetime and not in one lump sum. The agency is running a deficit, which it defines as losses from plans it has taken on plus estimated losses from plans it is likely to take over. Its deficit as of March 31 was $33.5 billion, more than three times what it recorded six monts earlier. 'Over the long term, the deficit must be addressed,' Mr. Snowbarger said at the hearing. ... The strain on the PBGC is similar to that felt by other government agencies grappling with the aftermath of the financial meltdown. ... The move by the PBGC clears billions of dollars in potential additional exposure to Delphi from GM, which is Delphi's former parent and itself just exited bankruptcy-court reorganization", Melanie Trottman, Mike Spector and John Stoll at the WSJ, 23 July 2009, link: http://online.wsj.com/article/SB124826066892471781.html.

"Delphi Corp.'s lenders prevailed in a bankruptcy auction and are poised to take control of the bankrupt auto-parts supplier, beating back a government-orchestrated deal to sell the company to [GM] and a California-based private-equity firm, said people familiar with the situation. Delphi's lenders prevailed in the auction by forgiving $3.5 billion in debt they are owed, a process known as credit bidding. The debt, a so-called debtor-in-possession loan, is owned by several investment funds led by Elliott Management and Silver Point Capital LP", Mike Spector at the WSJ, 28 July 2009, link: http://online.wsj.com/article/SB124874527824585671.html.

Didn't you know? Government liability guarantees are free?

Good show Judge Robert Drain.