GM to Highland: Cut us in

Date: Thursday, January 11, 2007
Author: HFN Daily Report

General Motors is demanding a bigger cut of the recapitalization package Highland Capital Management offered Delphi Corp.

Bankrupt Delphi in December had OK'd a $3.4 billion refinancing deal from Appaloosa Management and Cerberus Capital when Highland Capital countered that offer with a $4.7 billion package of its own. Highland Capital, a hedge fund with an 8.9% piece of Delphi, contended the joint offer from Appaloosa-Cerberus, who own over 10% of Delphi, would give the private equity tandem unfair control over the 12-member Delphi board.

Now carmaker GM, onetime owner of Delphi, said it is entitled to the extra benefit a Delphi shareholder would receive if bankruptcy court approved the rival bid from the hedge fund. Dallas-based Highland Capital had said GM would receive the same benefit as offered under the Appaloosa-Cerberus deal.

"We spent over a year working [on the Appaloosa-Cerberus deal] and now we have a company that has come in," GM Chief Financial Officer Fritz Henderson told Reuters. "To the extent there is another offer on the table [Appaloosa-Cerberus] we think we are entitled to some portion of that beyond what we already agreed to."

Henderson said Highland Capital made its offer late in the process and both GM and Delphi would benefit if Delphi, its former unit, were to emerge from bankruptcy in 2007. GM spun Delphi off in 1999 and Delphi is still the main customer for GM. The Financial Times has suggested the competition between Appaloosa-Cerberus and Highland Capital is a potential roadblock to Delphi coming out of bankruptcy. Delphi filed for bankruptcy protection in October 2005.

Highland Capital has a knack for getting involved in bankruptcy financing. Late last year, the hedge fund countered a $300 million refinancing package for another bankrupt company, satellite-maker Loral Space, that investment fund MHR Fund Management proposed.