Crucial deal for Delphi fizzles

An investment deal that could have helped lift parts supplier Delphi Corp. from bankruptcy fell apart Friday -- and that may not bode well for cash-strapped General Motors Corp.

Besides slumping U.S. sales and a strike that has shut down 30 of its factories, the world’s biggest carmaker may now be on the financial hook to help Delphi, GM’s former subsidiary and largest parts supplier. Delphi’s lifeline to exit bankruptcy was stalled after a private equity fund ended a deal Friday for a $2.55-billion cash injection.

The Appaloosa Management-led investment plan was an essential pillar in Delphi’s reorganization, which has been hindered by a tight credit market. Loss of the deal puts Delphi’s bankruptcy exit plan at risk and raises the issue of whether GM will be forced to offer even more support than it already is giving.

“I would not be surprised to see additional forms of financial support from GM,” Fitch Ratings analyst Mark Oline said. “It’s been never-ending since the initial filing.”

Standard & Poor’s analyst Marc Eiger told investors that the sooner Delphi emerged from bankruptcy, the better off GM would be. He noted that GM recently increased the amount of loan money it offered to Delphi, and it “may need to provide more cash to help Delphi emerge.”

As for an equity deal, Appaloosa said it was still negotiating to invest in Troy, Mich.-based Delphi despite its refusal to do so under the terms of the existing agreement.

GM spokeswoman Renee Rashid-Merem said the carmaker was disappointed Appaloosa had withdrawn.

“There has been a tremendous amount of effort and progress made to establish the foundation that would enable Delphi to emerge from Chapter 11,” she said in a statement. “GM will continue to work with the involved parties to facilitate Delphi’s efforts to emerge from bankruptcy.”

Appaloosa’s announcement came as Delphi -- which has been in bankruptcy since October 2005 -- faced a Friday deadline to raise $6.1 billion in loans to help it out of bankruptcy.

Delphi released a statement saying that it had raised the needed loan money and was ready to do the deal, but that Appaloosa had backed out.