Under the terms of Thursday's settlement, GM will convert Delphi preferred stock to common stock and grant it to creditors to provide them a 20 percent return if they don't get at least 20 cents on the dollar on their claims. If Delphi doesn't emerge from bankruptcy, GM would split the first $600 million it is paid on an administrative claim with the unsecured creditors. The deal allows Delphi to buy back as much as half of GM's preferred stock within six months of emerging, at a 15 percent discount. Under a Sept. 12 deal, Delphi agreed to grant GM a $2.1 billion administrative claim to be paid with preferred stock and Delphi agreed to waive any claims it could make in connection with its 1999 spinoff from GM. Delphi's creditors had bitterly complained that the earlier agreement with GM amounted to a 'wholesale surrender' that gave too much to GM. GM spokeswoman Renee Rashid-Merem said the company was pleased with the deal. 'It's an important step as Delphi continues its efforts to emerge.' GM earlier this month upped its contributions to help Delphi from $6 billion to $10.6 billion, including assuming $3.4 billion of Delphi's underfunded hourly pension plan. Delphi had faced pressure from the Pension Benefit Guaranty Corp. to shift some of its pension obligations before Sept. 30. GM, which has booked $11 billion in charges related to Delphi, also agreed to give the parts supplier $1.2 billion in cash payments through the end of the year to assure the company's liquidity. 'This is a victory for Delphi's workers and retirees, and represents a major step toward a successful reorganization for Delphi,' said PBGC's director, Charles E.F. Millard. Under a new pension law that takes effect Oct. 1, the costs of funding the pension would have increased dramatically. The PBGC said it would withdraw more than $1.2 billion in liens against Delphi's foreign assets as soon as the first phase of the transfer is completed. In an interview, Millard credited the pressure the PBGC had placed on GM and Delphi with getting the deal done. 'The liens got their attention,' he said. 'This gives Delphi the best chance of emerging.' David Cole, head of the Ann Arbor-based Center for Automotive Research, said Delphi had two big hurdles. 'They needed to resolve the dispute with the creditors and need to see the turmoil end in the financial markets,' Cole said. The $700 billion Wall Street bailout could help Delphi obtain exit financing. GM wasn't going to let the dispute with the creditors 'get in the way of settling the issues. They are going to see their return in terms of lower parts costs,' Cole said. Delphi, which filed for bankruptcy in October 2005 as the 11th-ever largest filing, nearly emerged in April from bankruptcy but a group of investors led by Appaloosa Management LP withdrew from an agreement to invest up to $2.55 billion in a recapitalized Delphi. Delphi sued Appaloosa in May seeking to force the investment group to follow through. You can reach David Shepardson at (202) 662-8735 or dshepardsondteom