Facing Stiff Opposition, Delphi Reschedules Hearing on Controversial "Key Executive Compensation Plan" to January 5, 2006

Delphi announced today that the motion to approve the executive compensation program (discussed in yesterday's post) "is being adjourned to January 5, 2006 pursuant to an agreement between the Debtors and the Creditors' Committee." No big surprise here given the opposition aligned against the motion, including an objection filed today by the US Trustee.

Here you'll find a 20 page agenda identifying all 32 matters set for hearing on November 29, 2005. Of these 32 matters: 17 are continued or adjourned, 6 are uncontested, agreed, or settled; 8 are contested non-evidentiary matters; and 1 is a contested evidentiary matter.

This last one, a motion for entry of a proposed order approving procedures to assume certain amended and restated sole source supplier agreements, is an interesting one. In it, Delphi seeks authority to assume agreements covering the supply of goods that Delphi determines--

are absolutely critical to their on-going business operations; in other words, those goods that are not readily available from another supplier in quantities sufficient to avoid an interruption in the Debtors' manufacturing operations and the Debtors' supply of products to their customers (generally sole sourced Goods) and without which the Debtors would face an imminent shutdown of business operations at one or more of the Debtors' business locations that would affect the operations of the Debtors' customers.

This motion drew scores of objections from affected suppliers left out of the deal, as well as from the Creditors' Committee. In support of the motion, Delphi filed supporting declarations from John Sheehan, Randy Eisenberg, and David Nelson. The DIP lenders filed a statement in support, though it was hardly a ringing endorsement of the proposal.

In the preliminary statement to its objection, the Creditors' Committee summed up its concerns as follows:

Regardless of the spin which the Debtors attempt to put on this Motion, it is an unsupported and unsupportable critical vendor motion seeking the authority to pay, potentially, all pre-petition trade claims outside a plan of reorganization with no further review by this Court. [FN 1] The Debtors suggest that the extraordinarily little diligence they have undertaken satisfies the business judgment standard, and yet they admit that they have not yet undertaken anything close to sufficient analysis to support the relief requested in their Motion.
FN 1: Although the Debtors estimate they may use "only" $500 million under the Motion (itself a shocking number), they admit that there is absolutely no factual basis for that estimate. The Motion seeks authority to pay any trade claim the Debtors want to pay, and the Debtors estimate that the outstanding trade balance is approximately $1.1 billion.

On the Petition Date, the Debtors sought emergency authority to make substantial payments to certain suppliers on account of pre-petition claims. To support that extraordinary relief, the Debtors told the Court of the great depth with which they had studied their supply chain, and of how they had identified for the Court the universe of claims that were critical to the Debtors' on-going operations. Now, 41 days after the Petition Date, the Debtors seek authority to make up to $1 billion in additional payments on account of supplier claims.

The Committee recognizes the critical nature of the Debtors' supply chain, and supports the preservation of that chain. The Committee objects, however, to the proposal - that amounts to a billion-dollar blank check -- that the Debtors be authorized to pay all outstanding amounts to their pre-petition suppliers under unidentified contracts with unidentified parties (at what must be a substantial premium to the market price for suppliers' claims), and to do so under the guise of "assumption" without any meaningful analysis, standards, or caps, and without any oversight by the Court. The Committee objects to the inexplicable waiver of unidentified avoidance claims against unidentified parties. And the Committee objects to the Debtors' extraordinary refusal to supply the Committee with any material information in support of the Motion.

The bottom line is that the Motion is not a well-tailored response to what the Debtors have represented is a real business problem. Instead, the Motion is part of a theme in these chapter 11 cases that the Committee (and, with respect, the Court) need to correct: the Debtors spot what they perceive to be a problem with their supply chain, and insist they must throw fistfuls of their unsecured creditors' money at it to fix it.

Looks like a long day for Delphi and its lawyers tomorrow.

© Steve Jakubowski 2005