DIPping Into Delphi - WSJ.com

DIPping Into Delphi - WSJ.com

The Obama Administration's fast-track sale of bankrupt auto-parts supplier Delphi hit a speed bump late last week when Judge Robert Drain ordered that Delphi conduct an open auction for its assets. That has a number of distressed-debt investors circling. It may also mean that the public will get some answers about the curiously structured sale that GM had quietly put forward the same day it filed for bankruptcy protection itself.



Under that deal, a bankrupt GM -- which is to say, taxpayers -- was set to provide most of the funding for Delphi's exit from bankruptcy, with private-equity firm Platinum Equity throwing in some cash and getting a sizable equity stake in return. The investors who have so far provided most of the debtor-in-possession (DIP) financing during Delphi's four-year bankruptcy case would have gotten as little as 20 cents on the dollar -- almost unheard-of in bankruptcy cases.

Those investors cried foul, pointing out that DIP financers generally have the right to take control of the company if they can't be paid in full. GM and the government at first threatened to play hardball, claiming that Platinum was the only buyer acceptable to GM and so its deal was the only one on the table. Judge Drain wasn't buying it, however. "I don't know what makes Platinum acceptable to GM and why Platinum is unique," he said. "Unless I hear more, there's something going on here that doesn't to me make sense."

That's putting it mildly. When the government arranged the Chrysler and GM bankruptcies, it noted with some justification that, as the DIP financer for the cases, it had wide latitude to determine the companies' fates and ownership structure. But when it comes to Delphi's private DIP lenders, it has taken a very different position, apparently in the interests of wrapping up Delphi's case as quickly as possible to speed GM's own exit from bankruptcy. Taxpayers and investors alike deserve to know more about what looks like a sweetheart deal for one favored group of investors, and Judge Drain deserves kudos for putting on the brakes.