Delphi Creditors Want In On Appaloosa Lawsuit

May 29 2008 | 2:00am ET

Hedge fund Appaloosa Management may have more than just a bankrupt auto parts maker to deal with.

Unsecured creditors of Delphi Corp. have asked a judge to allow them to intervene in Delphi’s $2.55 billion lawsuit against an investor group led by Appaloosa. Should the U.S. Bankruptcy Court in New York approve their request, the creditors would have the right to participate in discovery and any settlement talks.

Delphi’s lawsuit arose from the Appaloosa group’s decision to back out of a $2.55 billion financing deal for Delphi, which would have allowed the company to exit bankruptcy. Appaloosa alleges that Delphi violated several tenets of its agreement, while the company says the investors simply decided they no longer liked the deal.

“Because of the failure to provide the agreed-upon investment financing, distributions that should have been made to creditors pursuant to the plan have not been made,” the creditors’ committee said in the court papers, filed Tuesday. It explained that it must “protect vigorously the interests of its constituency,” and that creditors would have “directly benefited” from the Appaloosa deal.

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