Lear Corporation is getting ready to join a long list of major auto parts manufacturers in Chapter 11.
Mega-supplier Lear Corp., best known for its seating business, is expected to become the latest in a long and growing line-up of automotive parts manufacturers to file for bankruptcy protection.
A major supplier to General Motors Corp., itself undergoing a Chapter 11 reorganization, Lear Chairman and Chief Executive Office Bob Rossiter confirms the company has lined up funding and has negotiated an agreement in principle with its secured lenders and bondholders that would allow it to restructure its debt.
The big suppler of automotive of seating systems, electrical distribution systems and electronic products believes it has put together a plan to move through an expedited bankruptcy process that would ensure the company’s ability to survive as an ongoing enterprise.
“We want to assure everyone – customers, suppliers, employees, and the communities of which we are a part – that Lear is committed to positioning our business for sustainable success,” Rossiter said after reaching a deal with a major block of creditors.
Rossiter said despite its financial troubles, Lear has a low-cost footprint, a diverse customer base, a solid backlog of new business and a strong cash position. It will also emerge from bankruptcy with a smaller debt load and plans to pay all trade creditors in full.
The restructuring plan, which has been put in place, also has the support of a majority of the members of a steering committee of Lear’s secured lenders and a steering committee of bondholders acting on behalf of an ad hoc group of bondholders.
Lear also has received commitments from a syndicate of secured lenders, led by J.P. Morgan and Citigroup, for $500 million in new money debtor-in-possession financing, Rossiter said.
Rossiter, however, conceded not all of the company’s creditors have agreed to the deal.
Nevertheless, Lear’s board of directors concluded that “this protective action was the fastest and most effective way to ease its debt burden,” given the unprecedented economic downturn and corresponding decline in global automobile production volumes, as well as continued difficult conditions in credit markets.
Once one of the highest-flying of automotive parts makers, Lear’s fortunes began to fall as key domestic customers, like General Motors, saw their own business decline. The situation has been worsened by the global automotive supplement, which has led to recent losses at Lear, and a missed $38 million interest payment that had been due on June 1st.
Lear’s bankruptcy filing would come less than two months after Visteon, the former parts unit of Ford Motor Co., sought its own Chapter 11 protection.