By Soyoung Kim

Under the deal, which met quick opposition from Delphi creditors, GM would provide Delphi with a total of $10.6 billion in support, including the assumption of $3.4 billion in pension obligations for Delphi's factory workers.

Delphi, which filed for bankruptcy protection in 2005, warned in a court filing that without GM's stepped-up support, "a viable stand-alone business plan may not be possible."

Delphi has been struggling to negotiate a revised reorganization plan since investors led by Appaloosa Management backed out of a $2.55 billion equity investment deal to support its emergence from bankruptcy in April.

Delphi said the proposed support from GM would allow it to pursue new exit financing, including an equity offering.

The auto parts supplier is asking for bankruptcy court approval of the changes at a hearing on September 23.

The unresolved Delphi situation has been a major financial drag on GM at a time when U.S. auto sales are near 15-year lows. The No. 1 U.S. automaker has taken a total of $11 billion in charges for Delphi's reorganization, including $2.8 billion in the second quarter.

When GM spun off Delphi in 1999, it agreed to assume pension and health-care obligations for thousands of Delphi employees represented by the United Auto Workers union should the supplier be unable to do so.

Under the revised proposal, much of the financial support GM had planned to offer Delphi when the supplier emerged from bankruptcy would be made available earlier.

In addition, GM would give up $2.5 billion it had projected to recover upon Delphi's emergence from bankruptcy, based on an assumption that creditors would recover 20 cents on the dollar or less.

"It doesn't serve anyone's interest for Delphi to be in bankruptcy any longer than they have to be, and from our perspective, this is an important step forward for them," said Renee Rashid-Merem, a GM spokeswoman.

The committee that represents unsecured creditors in the Delphi bankruptcy objected to the proposed changes to GM's support for the auto parts maker and also renewed a request to pursue claims against GM on Delphi's behalf.

Delphi has "completely abdicated" its responsibility through a one-sided agreement with GM releases claims on the automaker whether or not Delphi succeeds in reorganizing or unsecured creditors receive a distribution, the committee said in a court filing.

"There is no proposed revised plan of reorganization on the table ... and no clear path toward emergence," the committee said.

Delphi also filed a motion to freeze its hourly and salaried worker pension plans, capping liabilities before it emerges from bankruptcy.

Union approval would be needed to freeze the hourly pension plans before the company's emergence from bankruptcy.

Delphi had faced the threat of legal action by the U.S. Pension Benefit Guarantee Corp. unless it reached an agreement with GM to transfer part of its pension liabilities to the automaker.

"This is a very encouraging step in the right direction," PBGC Director Charles Millard said in a statement. "As we have always noted, the transfer of a large amount of pension liabilities to GM is a crucial element in restoring Delphi's financial health."

The pension insurance agency said this week it was ready to file an additional $900 million in claims against Delphi's foreign assets operating outside of bankruptcy, but hold off the claim if GM and Delphi agreed to a transfer of the pension liabilities and file court documents by Friday.

(Additional reporting by David Bailey and Kevin Krolicki; Editing by Gary Hill)