Auto Parts Maker’s Creditors Sue Hedge Fund

Jul 24 2008 | 9:43am ET

A group of Delphi Corp. creditors have sued hedge fund Appaloosa Management, saying it and the investor group it led “defrauded” the auto-parts maker.

The creditors committee has asked the bankruptcy judge overseeing Delphi’s Chapter 11 case to revoke his January order confirming the company’s plan to exit bankruptcy, which included $2.55 billion in investment from the Appaloosa group. Delphi sued Appaloosa and its partners in May, asking Judge Robert Drain to force them to live up to the terms of their August 2007 agreement. Appaloosa bailed on the deal in April, accusing Delphi of violating several of its tenets.

“Appaloosa’s promises to remain committed to the plan and to [Delphi’s] successful emergence from bankruptcy were a sham,” Delphi’s unsecured creditors allege in the lawsuit, filed Tuesday. It said the hedge fund and its partners made the $2.55 billion promise while working “simultaneously and covertly” to undermine the company’s exit from Chapter 11.

The lawsuit alleges that Appaloosa fraudulently extracted $60 million in fees and costs from Delphi, as well as $80 million in breakup fees and expenses.

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