Delphi asks court to force investors to pay $2.6 bln

By Kevin Krolicki

DETROIT (Reuters) - Auto parts supplier Delphi Corp (DPHIQ.PK: Quote, Profile, Research) on Friday filed a lawsuit against an investor group led by Appaloosa Management L.P in an attempt to win a court order requiring the group to provide $2.55 billion in equity or damages to the bankrupt company.

Last month, an investor group led by Appaloosa backed out of a $2.55-billion equity commitment to Delphi that had been intended to support the company's emergence from bankruptcy.

The decision by the investor group, which came amid a sharp downturn in U.S. auto sales and more risk-averse financial markets, was seen as delaying Delphi's emergence from Chapter 11 after two and a half years and raising the cost of the process for General Motors Corp (GM.N: Quote, Profile, Research), Delphi's former parent and largest customer.

"This is a story of trust and betrayal," Delphi said in its filing with U.S. Bankruptcy Court in New York.

The Troy, Michigan-based supplier asked for the court to order the investor group, including an affiliate of Merrill Lynch (MER.N: Quote, Profile, Research), Goldman Sachs & Co and UBS Securities LLC, to provide up to $2.55 billion in funding or to clear the way for it to seek damages at trial for breach of contract and fraud.

Appaloosa had no immediate comment on the suit, which came over a month after Delphi had said it had hired outside counsel to consider its options against Appaloosa because of the failed investment deal.

The fund, which is headed by billionaire David Tepper, had charged that Delphi with breaching its commitments when it served notice that it was pulling out of the equity investment in early April, just hours before Delphi was due to wrap up its exit financing arrangements.

In its bankruptcy court filing, Delphi said it believed that the real reason Appaloosa pulled out of the deal was that a tough market had forced it to reconsider terms to which it had already agreed.