Delphi 2009

NEW YORK - Delphi Corp.'s lenders faced a Thursday deadline to submit their own bid for the struggling auto supplier, which would set up an auction of the company's assets.

The lenders, which have financially supported Delphi during its nearly four years under court protection and are owed about $3.45 billion, have said in court filings that they planned to submit a competing credit bid, which would involve them forgiving the debts that they are owed.

If the lenders submit a bid, an auction of Delphi's assets will be held Friday. A sale hearing is scheduled for July 23.

Under a deal struck in June, the Beverly Hills, Calif.-based private-equity firm Platinum Equity would be allowed to operate Troy, Mich.-based Delphi's businesses both in the U.S. and abroad. General Motors Co. would contribute a total of about $3.9 billion, including a $2 billion equity investment in Platinum, to help finance the deal. Platinum would contribute a maximum of $500 million in financing.

In exchange, GM will get certain parts of Delphi and much needed assurance of a steady supply of the parts it needs to produce its cars and trucks. Other "noncore" plants and assets will be sold off over time.

Delphi, which was GM's parts division before being spun off in 1999, filed for bankruptcy protection in October 2005. It still produces about 10 percent of the parts used in GM's global production and its components go into nearly all of GM's North American production lines.

But many of the Delphi's lenders have balked at the deal calling it a "secretly negotiated transaction" that violated Delphi's obligations to maximize the value of the lenders' investment.

In a court filing late Wednesday, several of Delphi's lenders said they were confident that a credit bid submitted by the lenders will "represent a higher and better offer to Delphi" and would provide a better return for the company's senior lenders than any other proposal.

Delphi said late last week that it received a notice from J.P. Morgan Chase & Co. that it might submit a bid on behalf of the lenders this week.

Also on Thursday, The New York Times citing anonymous sources reported that Delphi, its lenders and GM had reached a deal on a credit bid that would set aside the agreement with Platinum and allow the company to exit Chapter 11.

Spokesmen for both Delphi and GM said they could not comment on any potential bids or agreements. Representatives for Delphi's lenders did not immediately return calls and emails seeking comment.

Platinum released a statement saying that it was preparing for a Friday auction.

"We expect Delphi and General Motors to support the highest and best offer to emerge from that auction, provided the winning bidder meets certain requirements to ensure that Delphi continues to operate as a stable, long-term supplier to GM and other global automotive customers," Platinum said.

"To date, Platinum Equity has offered the only proposal that meets those requirements."