17 May 2008

Troubled automotive components group Delphi is to take legal action against the group of investors that pulled out of a $2.55 billion rescue package last month.

 

The equity financing deal led by Appaloosa Management would have seen Delphi emerge from the Chapter 11 bankruptcy protection, which Delphi has been under since October 2005.

 

David Sherbin, Delphi's vice president, general counsel and compliance chief, said: "We believe that the plan investors breached their obligations under the Equity Purchase and Commitment Agreement that was the financial foundation for our court-approved plan of reorganisation."

 

Delphi's court deposition alleges that the investors "schemed to avoid their obligations rather than fulfil them".

 

Sherbin said: "The plan investors vigorously pursued a prominent role in our restructuring, received over $60 million in fees for their commitments and positioned themselves to reap substantial profits after consummation of the plan."

 

Delphi is claiming for breach of contract and fraud and is asking the bankruptcy court to enter a "judgment of specific performance" that would require the plan investors to fund up to $2.55 billion and to pay compensatory and punitive damages.