NEW YORK (CNN/Money) -
Auto parts maker Delphi said Saturday it filed for bankruptcy after warning for months that a filing was in the cards.
Delphi is the largest U.S. auto parts maker. The company filed for Chapter 11 bankruptcy protection for itself and 38 U.S. units in the U.S. Bankruptcy Court in New York. Delphi's non-U.S. units were not included.
It is the biggest bankruptcy filing in U.S. automotive history and promises to have a broad impact across the industry. The Troy, Michigan-based company has struggled since it was spun off from former parent General Motors Corp. in 1999, posting net losses of $741 million in the first half of 2005 alone.
The company's board also announced that it had appointed a new Chief Financial Officer, Robert J. Dellinger. Dellinger was most recently CFO of Sprint. He succeeds John D. Sheehan, who was named Delphi's vice president and chief restructuring officer and had served as acting CFO since March 4, 2005.
Sheehan will retain his responsibilities as chief accounting officer and controller on an interim basis but his primary focus will be on leading Delphi's restructuring activities, Delphi said in a separate announcement.
Delphi (down $1.08 to $1.12, Research) has been warning of the threat of a bankruptcy filing for months. Its executives have been seeking deals with both the UAW and former parent General Motors Corp. in an effort to win what would essentially be a multi-billion dollar bailout and stave off a bankruptcy filing.
The United Auto Workers local units said Thursday that Delphi is seeking massive wage and benefit cuts according to published reports. A day later Delphi Corp. said it sweetened severance policies for about 21 top officers in a move that may keep executives loyal as the automotive parts maker fights off bankruptcy.
"Having been unable to resolve our U.S. legacy issues out of court," said Robert S. Miller, Delphi's chairman and CEO. in a company announcement, "we determined it was in Delphi's best interest to address the U.S. cost-structure issues through the chapter 11 process now while our liquidity position is strong."
Delphi's stock, which has fallen steadily from above $6 in August and traded above $9 in the last 12 months, tumbled on the New York Stock Exchange late this week to trade at an all-time low.
Almost 150,000 of its employees at the end of 2005 were union members, with 25,000 in the United Autoworkers here in the United States.
Delphi had about 185,000 employees worldwide in 38 countries at the end of last year, although it announced plans in December to cut 8,500 of those jobs, including 3,000 at U.S. plants.
The company anticipates that the bankruptcy court would permit the company to continue to pay wages, salaries and current benefits of U.S. hourly and salaried employees and certain retiree benefits without disruption and in the same manner as before the filing, the company said in announcing the filing.
Delphi said plans to finance its global operations with $4.5 billion in debt facilities plus additional financing in Asia, Europe and the Americas, the company said.
The financing includes a commitment for up to $2 billion in senior secured debtor-in-possession financing from a group of lenders led by JPMorgan Chase Bank and Citigroup Global Markets, Inc., the company said
The former wholly-owned parts unit of General Motors Corp. (down $0.06 to $28.29, Research) said it has been hit by the downturn in fortunes at the world's largest automaker, as well as by its own internal problems.
An investigation into its accounting practices by the Securities and Exchange Commission resulted in a broad turnover of top executives at the company during the last year.
In addition to its ongoing troubles within the auto industry, the filing may have been prompted by a change in U.S. bankruptcy law set to take effect Oct. 17.
That change in the law is seen as giving companies less freedom to find their way out of bankruptcy. It gives creditors and other parties in the filing the chance to present a reorganization plan of their own after 18 months, including one that might include liquidation.
Under the current bankruptcy law, company management can essentially have an unlimited time to present a court-approved reorganization plan.
The filing is bad news not only for Delphi and its shareholders, but also for its former parent and largest customer General Motors, which may face liabilities that it tried to shed when it spun off its parts unit in 1999.
Delphi started as a division within General Motors supplying its different brands with auto parts. Its unionized employees were essentially covered under the same labor contracts as other UAW members at GM, putting the unit at a cost disadvantage with some of its competitors. It also had little ability to sell parts to other automakers. Last year nearly half of the company's 2004 revenue of $28 billion was to automakers other than GM, up from only a bit more than a third of its sales in 2002.
But the company lost $4.8 billion in 2004 and another $741 million in the first half of this year. Analysts surveyed by earnings tracker First Call had forecasted losses to continue into at least 2007.
After years of signaling its intention to spin-off Delphi, GM filed for an initial public offering for the unit in November 1998. It went public in February 1999, raising $1.7 billion for GM for the 18 percent stake in the company that was included in the offering. Other shares of the stock were distributed to GM shareholders later in the year.
Delphi said it plans to emerge from bankruptcy in early to mid-2007, after substantially cutting U.S. manufacturing operations and modifying labor agreements to reduce wages and benefits.
Under terms of its spinoff, GM may be liable for pension and retiree benefits for UAW workers at Delphi, though analyst forecasts of the cost to GM have varied broadly in the range of billions of dollars.
GM said the Delphi restructuring could "create operating and financial risks for GM," but added that the filing did not necessarily make it liable for post-retirement health-care and pension benefits for Delphi employees
UAW Vice President Dick Shoemaker noted that just a day before the filing, Delphi increased severance packages for 21 top executives, citing a need to make them more competitive.
"It's another classic example where 'uncompetitive' means that those people at the highest level get more, those that aren't fortunate to be at the highest levels get less," Shoemaker said.