A U.S. bankruptcy judge on Friday said Delphi Corp can proceed with an exit financing deal that relies heavily on General Motors Corp, a crucial step for the bankrupt auto parts maker.

Delphi had argued that the revised plan including up to $2.8 billion in loans from GM was key to its ability to secure needed financing and would not violate the terms of Delphi's court-approved plan to emerge from bankruptcy.

Judge Robert Drain, after a hearing on the matter, said Delphi's emergence plan would allow a GM affiliate to provide the additional financing to Delphi, but GM could not directly lend the money itself.

The ruling gives Delphi sufficient guidance to seek exit financing on terms that are potentially achievable, said Drain, of the U.S. Bankruptcy Court for the Southern District of New York.

Hedge fund Appaloosa Management LP, the lead investor behind a planned equity infusion of $2.55 billion in Delphi, had argued that GM's larger role in the exit financing package would have violated the terms of Delphi's emergence plan.

GM said earlier this week it was ready to provide additional loans to Delphi to help to complete a $6.1 billion financing package that would allow its exit from bankruptcy. GM had agreed to underwrite a $2 billion loan and up to $825 million in a second loan if it cannot be placed with investors.

After the judge's ruling, Delphi lawyer Jack Butler called the decision a very positive development for Delphi and all of its stakeholders.

Appaloosa lawyer Thomas Lauria said it was not clear how or whether GM could comply with the court order that the financing to Delphi would have to be provided through an affiliate.

We've got to study that and try to understand where the court's mind is and where we're going from here, Lauria said after the hearing. He had argued earlier to the judge that permitting the GM financing would be harmful to Delphi investors as well as to the company.

(It) results in GM again having undue influence over debtors' affairs, he told the judge.

Appaloosa has agreed to extend a deadline to terminate its portion of the deal until April 5. Other investors include Harbinger Capital, Merrill Lynch & Co (MER.N: Quote, Profile, Research), UBS AG (UBSN.VX: Quote, Profile, Research), Pardus Capital, and Goldman Sachs Group Inc (GS.N: Quote, Profile, Research).

All of the equity investors objected to the stepped-up role for GM in the exit financing with the exception of Goldman Sachs.

A GM spokeswoman could not immediately be reached for comment.

Delphi lawyer Butler said getting the GM financing was integral to Delphi obtaining its needed financing amid the backdrop of difficult credit market conditions.

Troy, Michigan-based Delphi, which was spun off by GM in 1999, filed for bankruptcy protection in October 2005. It has planned to exit from bankruptcy in the first quarter.