West Palm Beach (HedgeCo.Net) – Hedge fund Appaloosa Management has backed out of their $2.55 billion commitment to bankrupt auto-parts maker Delphi. The announcement which came via the SEC on Friday was a blow to parent company GM, and a setback for Delphi, who has been trying to secure $6.1 billion to lift themselves out of Chapter 11.
Appaloosa was legally allowed to walk away from the deal if Delphi did not come up with the rest of the financing by April 4. Citing Delphi’s over dependence on General Motors, Appaloosa backed out on the last possible day that the contract allowed. Delphi said it had arranged the entire exit financing and was starting the closing process, but they were too late.
"We are extremely disappointed that our plan investors have taken the position that they are not obligated to fund their plan investment commitments to Delphi and instead have chosen to walk away from the company and its stakeholders," Delphi Chief Restructuring Officer John Sheehan said in a statement.
Appaloosa had expressed discontent with GM’s role in the deal, which came in the form of a $2.8 billion loan. Appaloosa thought this would GM too much control over Delphi and the relationship would hurt Delphi’s ties with other customers.
"There has been a tremendous amount of effort and progress made to establish the foundation that would enable Delphi to emerge from Chapter 11," GM said in a statement. "GM will continue to work with the involved parties to facilitate Delphi’s efforts to emerge from bankruptcy."
Appaloosa was part of a rescue team that also included Goldman Sachs, Harbinger, UBS, Merrill Lynch and Pardus. Last month, Delphi accused traders at Appaloosa of short-selling their stock with the anticipation that the financing would fall through. The hedge fund vehemently denied the charges, saying that if they were going to walk away, they would have done so by now.
Appaloosa said they are open to considering other alternatives "including considering transactions in which they would participate in a capacity different than currently envisioned by the agreement."
Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net
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