Thursday, June 11, 2009

Judge Drain Orders Against Gifting Delphi To Platinum

WSJ reporting that Judge Drain in charge of the GM bankruptcy case has ordered Delphi to hold an auction and allow bids to challenge the government-brokered sale to Platinum Equity. Drain's comment with regard to Tom Gores' henchmen is priceless: "What's so special about Platinum?" They're just guys in suits. Why can't the other guys in suits just pay more?"

The Delphi case is the latest in an escalating debate over the Obama administration's attitude toward creditors' rights in bankruptcy court. The federal government has been criticized in both the Chrysler and General Motors Corp. bankruptcies for subverting bankruptcy law, harming senior lenders in order to complete a transaction.

"The rule of law and commercial rights of lenders cannot bend in the face of political forces," said Marc Abrams, a lawyer for a group of the hedge funds, in a standing-room-only courtroom in lower Manhattan Wednesday before Judge Robert Drain.

Virtually all of the remainder of Delphi's assets -- including its Troy, Mich., headquarters -- was to be sold to Platinum Equity, a Beverly Hills, Calif.-based private-equity firm specializing in distressed companies. Platinum is putting in $250 million of equity and $250 million in financing to fund the deal, with more than $2.5 billion of equity and debt being provided by GM. A GM lawyer at the hearing Wednesday estimated the auto maker's total Delphi contribution at $4 billion.

The lenders argued that Platinum was a puppet of the government and GM, which needs Delphi to emerge from bankruptcy for its GM bailout to succeed. Platinum "is an entity funded principally by GM (and thus controlled by the Auto Task Force) in which GM's and the Auto Task Force's hand-picked private-equity buyout partner Platinum provides the appearance of an independent third-party in exchange for disproportionate economic returns," wrote lawyers for a group of lenders in court papers.
Great, more people talking, some posturing here and there and nothing really changing. Rattner will just make a call to Tom, a few side calls to any potential Delphi bidders, and Platinum will end up getting Delphi with a $1 overbid and still "purchase" the company at 10% equity-to-capitalization with the taxpayers footing all the risk and Platinum getting all the upside. The cronyism will likely never change. Sphere: Related Content
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