Auto Parts Maker Sues Hedge Fund, Seeks $2.5B

May 19 2008 | 11:35am ET

Bankrupt auto parts maker Delphi Corp. has finally taken legal action against an investor group led by hedge fund Appaloosa Management, and it isn’t seeking just a break-up fee.

The Troy, Mich.-based company sued the Appaloosa group on Friday, asking a judge to force it to live up to the terms of the $2.55 billion investment deal struck in August 2007. The equity agreement was part of the $6.1 billion Delphi needed to exit Chapter 11 bankruptcy; Appaloosa informed the company it was pulling out of the deal last month, alleging that Delphi had violated several tenets of its agreement.

At the time, Appaloosa accused Delphi of “reaching agreements with [former parent General Motors] that are materially inconsistent with the agreement and the plan.” But the auto parts maker tells a different tale.

“This is a story of trust and betrayal,” Delphi said in its U.S. Bankruptcy Court filing.

“Delphi believes that defendants back out of the transaction simply because they decided they did not like the economics of the deal they had agreed to, and that they never intended to close if the deal was underwater,” it alleged.

Appaloosa has yet to respond to Delphi’s suit.

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