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Billionaire Paul Singer is set to score one of the biggest hedge-fund wins of next year when his firm cashes out of its stake in auto-parts supplier Delphi.
While government-owned General Motors has lost $12 billion trying to bail out its former parts unit and largest supplier, Singer is poised to get a major payout if Delphi goes public as planned early next year.
Singer’s fund, Elliott Management, and partner Silver Point Capital still hold an 18 percent stake in Delphi, which emerged from bankruptcy in October of last year. The firms acquired that stake as payment from other lenders for selling off their stakes in the business.
That stake, which was worth $640 million at the time Delphi exited bankruptcy, has now more than doubled in value to $1.54 billion based on Delphi stock that is traded on secondary exchanges.
Moreover, Elliott Management, which bought up Delphi debt for pennies on the dollar, reaped a windfall last year when it and Silver Point unloaded billions of Delphi loans by converting them into equity and selling them off to other investors.
Both firms took a big gamble by jumping into the four-year-old bankruptcy process for Delphi, which had been stalled in court with lenders, unions and GM fighting over the company’s fate.
President Obama’s auto task force, run by Steven Rattner, sought to end the protracted bankruptcy by threatening to cut off funding for Delphi if a settlement was not reached.
GM, the Treasury and the auto task force wanted to sell Delphi to private-equity firm Platinum Equity Partners in a $3.6 billion deal that would have nearly wiped out lenders. Under the terms, Platinum would have put up $500 million and the government would have kicked in most of the rest.
But Elliott Management and Silver Point did an end run around the deal, buying up much of $2.9 billion worth of Delphi loans for around 15 cents on the dollar. The firms then used the debt position to block the sale to Platinum, raising the specter of a liquidation if the sale went ahead.
Through their maneuvering, they brokered a deal with the government to repossess Delphi in October 2009, by bidding the value of debt they were owed by the parts supplier. Then, Elliott Management and Silver Point went to lenders with an offer to sell their stakes in the business but demanded an 18 percent stake in the company in return for their trouble.
“People said, what’s this?” a Delphi lender said. “[Elliott and Silver Point] said you can either take it or try to fight it in court.”
“It left a bad taste in everyone’s mouth.”
The Treasury, Elliott and Silver Point all declined comment.
Since then, the value of Delphi — similar to auto parts peers Magna and Dana — has more than doubled based on the trading price of Delphi units that have risen from $6,400 a share to $15,400, sources said.
GM received a 34 percent equity stake when Delphi emerged from bankruptcy and agreed to lend the business $1.7 billion. That equity stake is now worth $2.9 billion. However, GM has written off $12 billion over the years to keep Delphi afloat.