Auto parts supplier hits credit line

TRAVERSE CITY, Mich. - Auto parts supplier Delphi Corp. said Friday that it's dipping into its credit line to finance operations, raising speculation it might declare bankruptcy if restructuring talks with General Motors Corp. and the United Auto Workers union are unsuccessful.

Standard and Poor's Ratings Services, Fitch Ratings and Moody's Investors Service all lowered Delphi's credit rating further into "junk" status on the news. S&P said Troy, Mich.-based Delphi has total debt of about $4 billion and total unfunded pension and retirement liabilities of about $14.5 billion.

Delphi, the largest U.S. auto supplier, said it had begun drawing on its $1.8 billion credit line to finance its operations. It said it initiated a drawdown of $1.5 billion Wednesday.

The company also confirmed that it's in restructuring talks with GM, its former parent and largest customer, and the UAW, which represents about 25,000 Delphi hourly workers.

Jim Gillette, a supplier analyst with the automotive forecasting firm CSM Worldwide, said warnings of bankruptcy are premature.

"They've got that line of credit to help them through the rough bumps this year," Mr. Gillette said. "Delphi, from a product standpoint, is very strong, and they've been doing a good job diversifying their customer base."

But S&P said the drawdown could mean Delphi is securing its liquidity should a bankruptcy filing become necessary.

Fitch said it's in UAW's best interest to negotiate a restructuring plan because wages and benefits wouldn't be protected in bankruptcy court.

GM also has a significant stake because it could be liable for part of Delphi's pension and health care costs if a bankruptcy filing occurs before UAW's contract with GM and Delphi expires in 2007.

Delphi President and Chief Operating Officer Rodney O'Neal addressed Delphi's high fixed costs this week at an automotive conference in the northern Michigan city. Mr. O'Neal said Delphi has too much plant capacity and is paying $300 million to $400 million per year to workers who are laid off because of its UAW agreement.

"What you see is an industry in which many of the players are just buckling under the pressure," Mr. O'Neal said.