West Palm Beach (HedgeCo.Net) – Bankrupt auto parts maker Delphi is surrounded by a whirlwind of drama since trying to secure $6.1 billion in exit financing.
The former GM subsidiary turned to hedge fund Appaloosa Management, who agreed to extend $2.55 billion, and it looked as if Delphi was going to resurface. However, in the months since then, it is becoming more and more unclear as to whether or not Delphi will secure the money needed to lift themselves out of Chapter 11.
The Houston Chronicle reported that Delphi has received “credible information” that members of Appaloosa have been shorting Delphi stock. This means that they are betting that the price of the stock will fall, based upon the uncertainty surrounding the refinancing.
Jack Butler, an attorney for Delphi, stated that one or more of the investors at Appaloosa "may have material unrealized or realized gains on these investments."
On the other side of the fence, investors at Appaloosa are not too happy with Delphi and the role that GM is playing. They say that GM’s involvement in helping to lift Delphi out of bankruptcy, which includes $2.8 billion in exit financing loans, is undermining Appaloosa’s role in the restructuring.
In a court document, Appaloosa asserted that GM’s involvement "is contrary to Delphi’s stated goal of reducing its reliance on and exposure to GM and developing broader relationships with other (auto manufacturers)."
GM expressed that their "willingness to take an expanded role in Delphi’s exit financing represents another step GM is taking toward that end."
This is why it’s a conflict of interest, to say the least, if investors at Appaloosa are shorting Delphi’s stock. It would be easy to say their disapproval of GM’s involvement may just be because they want the whole thing to unravel. If Delphi doesn’t secure the $6.1 billion by April 5th, Appaloosa, along with the other investors, can walk away from the whole deal.
Julie Scuderi
Senior Editor for HedgeCo.Net
Email: [email protected]]
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