Delphi Plans Restructuring Moves

Auto parts maker Delphi Corp. (DPH) Thursday said it is seeking secured credit lifelines from lenders to refinance existing deals and preserve liquidity for its restructuring amid federal probes into accounting, shrinking sales at key customers and rising materials costs.

Delphi (search) said it plans to replace a $1.5 billion one-year revolving credit facility that expires in June by increasing a $1.5 billion five-year revolver that expires in 2009, with collateral to lenders, and obtaining secured term loans. It expects the financing to close in early June.

"Delphi ... believes that this financing plan will provide us the liquidity and flexibility to continue our transformation," acting Chief Financial Officer John Sheehan said in a statement.

Delphi has sought to cut high wage and other costs it inherited in its spin-off from General Motors Corp. (GM) in 1999, while increasing non-GM business.

That restructuring process in 2005 includes previously announced plans to sell non-core assets such as its battery business, consolidate plants, cut 8,500 jobs and review other facilities for potential closings, all of which take money, Delphi spokeswoman Claudia Baucus said.

"This is a prudent measure to meet its needs and address upcoming maturities while it funds its pension gap, restructures some of its operations and continues to diversify away from exposure to GM," Fitch Ratings managing director Mark Oline said.

Delphi's reliance on providing collateral to secure the revolver and term loans was expected, given its financial position and operating results, Oline said.

Delphi plans to release first-quarter results and provide an update on the restructuring Friday, Baucus said. The company will delay filing a 10Q report with the U.S. Securities and Exchange Commission (search), as it has for the last two quarters of 2004, until it completes the accounting investigation.

"This new loan facility might provide some short-term help, but long term they have some big issues," Morningstar analyst John Novak said. "They are still dealing with massive legacy costs, poor cost structure and the troubles at GM and Ford Motor Co. (F)

The delay in the 10Q report shows that Delphi hasn't resolved its accounting issues yet, which remains a big negative, and the financing is basically an effort to provide a bridge to get through the industry downturn, Novak said.

Delphi and other suppliers have been squeezed as automakers cut costs in the face of competition from foreign rivals and surging costs for health care and raw materials.

Delphi, which sources said has hired restructuring adviser Rothschild Inc., previously said it has improperly accounted for cash payments to GM. In March, Delphi warned it may restate results from the last six years, and its chief financial officer resigned under pressure from its audit committee.

The FBI, U.S. Securities and Exchange Commission and U.S. postal inspectors are investigating Delphi.

The Troy, Mich.-based company launched its own investigation into its accounting practices after receiving an SEC subpoena in July. The U.S. Justice Department advised Delphi of its own investigation in March.

Delphi also is looking for a successor to Chairman and Chief Executive J.T. Battenberg, who announced in February that he plans to retire later in 2005.

Shares of Delphi fell 13 cents, or 3.53 percent, to $3.55 Thursday on the New York Stock Exchange. The stock is down about 60 percent year-to-date.