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Delphi sinks on warning $1.5B BorgWarner deal at risk

Craig Trudell and David Welch Bloomberg L.P.

BorgWarner Inc. may back away from its $1.5 billion deal to buy Delphi Technologies Plc after the targeted auto-parts supplier tapped out its credit line without receiving permission from its acquirer.

Delphi drew down its full $500 million revolving credit facility to position for the downturn related to the coronavirus pandemic, the Gillingham, England-based parts maker said Tuesday. BorgWarner gave Delphi notice that this breached their agreement announced in January and that it has 30 days to resolve the issue.

“Both companies continue to believe in the long-term strategic value of the transaction and are still working together towards closing the transaction in the second half of 2020,” Delphi said. “There can be no assurance, however, that BorgWarner and the company will reach a mutually acceptable resolution or that the transaction will close.”

In its statement, Delphi, which makes engine components such as fuel injection systems, also said it disputes BorgWarner’s breach assertion “on the basis that BorgWarner unreasonably withheld its consent.”

Delphi shares plunged 26% to $7.61 as of 9:51 a.m. in New York, while automotive turbocharger specialist BorgWarner pared a gain of as much as 8.8% to trade up 1.9% to $25.05.

BorgWarner may view Delphi’s increased borrowing as a sign that it’s struggling, Bloomberg Intelligence analyst Joel Levington said in a note this morning.

“Delphi was highly leveraged with modest liquidity heading into its potential merger, making its deal with BorgWarner a critical mechanism for long-term financial viability,” Levington said. “The company’s drawdown on its bank facility is prudent, but underscores the operating challenges it faces and potential covenant issues that might arise without the merger.”