The U.S. Treasury blocked moves by General Motors Corp. to increase payments to its former parts subsidiary Delphi Corp., which has been reorganizing under Chapter 11 bankruptcy protection since 2005, and to acquire the supplier’s steering business.
In a regulatory filing that details GM’s restructuring plan, the automaker said that the Obama administration’s automotive task force – which has the authority to reject transactions of more than $100 million – did not approve a deal that would have moved Delphi’s unwanted steering business to GM.
The task force also rejected a plan to add another $150 million to GM’s funding to the supplier, which was aimed at keeping the cash-strapped company operating through May.
The rejections have resulted in what is now a shorter timetable for Delphi to resolve its bankruptcy case.
GM, the Treasury, Delphi and its lenders are in negotiations and now face a May 9 deadline to come up with a deal that will resolve Delphi’s Chapter 11 bankruptcy.
Without a deal by then, banks that are financing Delphi’s operations in bankruptcy could call their loans, resulting in the liquidation of the company.
GM warns in its filing that if Delphi can’t emerge from bankruptcy in the near-term, “it may be forced to sell all of its assets.”
If that happens, GM says it would have to foot the bill to find new suppliers and buy back Delphi’s plants to ensure the parts supply is not disrupted.
“If they’re going to run out of money, that could halt production, that could bring General Motors to its knees,” said Birmingham-based restructuring expert Van Conway.
An abrupt shutdown would almost certainly lead to a GM bankruptcy filing, one in which Delphi lenders would have little leverage, Conway said.
Meanwhile, GM sent a signal to Delphi that it would avert an abrupt production halt this summer, if Delphi failed to deliver parts, because 13 of GM’s North American plants would already be on an extended shut down.
Delphi said last week that it has had no supply disruptions in its more than three-year bankruptcy case.