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Lear, which makes automotive seating systems, and electronics, said its board has approved the bankruptcy filing as the "fastest and most effective way" to reduce debt in the wake of the unprecedented economic downturn and corresponding decline in global automobile production.
The company plans to commence shortly the proposed restructuring under court supervision, pursuant to a voluntary bankruptcy filing. The company's units outside the U.S. and Canada will not be part of the bankruptcy filing. It said those operations are well-capitalized and have a strong backlog of new business.
Lear said its debt restructuring plan has the support of a majority of the members of a steering committee of its secured lenders and a steering committee of bondholders. Lear said it is also seeking support for its restructuring plan from additional lenders and bondholders.
The company 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 to provide additional financial flexibility. The financing will convert into exit financing with a three-year term upon Lear's emergence from bankruptcy protection.
The company anticipates being in default under its 8.50% senior notes due in 2013 and 8.75% senior notes due in 2016, as the 30-day grace period applicable to interest payment will expire on July 2. In addition, in light of the pending reorganization plan, the company has not made principal and interest payments due under its senior credit facility on June 30th.
For the first quarter, Lear reported a net loss attributable to the company of $264.8 million or $3.42 per share, in comparison with net income of $78.2 million or $1 per share in the earlier year. Net sales for the quarter fell 44% to $2.17 billion from $3.86 billion in the year-ago quarter.
While announcing the financial results for the first quarter Bob Rossiter, chairman, chief executive officer and president, Lear Corp. said, "Given the adverse economic conditions and dramatic slowdown in automotive demand at the end of last year, many of our major customers had extended plant shutdowns in the first quarter. As a result, production was down sharply in North America and Europe. In this difficult environment, we are minimizing our operating costs and accelerating our restructuring efforts."
The planned bankruptcy filing by Lear brings into focus the pressure on the sector due to bankruptcies at automakers General Motors Corp (GMGMQ.PK) and Chrysler. A filing would add evidence that even the automotive sector's largest suppliers are feeling the squeeze from plant shutdowns, slumping demand and tight credit markets. List of major auto-parts suppliers to seek Chapter 11 protection during this year include Visteon Corp (VSTN.PK ), Metaldyne Corp (HEINPM.UL) and Noble International Ltd (NOBLQ.PK ).
President Barack Obama's auto task force initiated a $5 billion financing support program to auto parts suppliers in April to avoid shutdowns as GM and Chrysler operated with $17.4 billion in government funding and faced the possibility of filing for bankruptcy protection at that time.
Automotive parts suppliers sought an additional $8 billion to $10 billion in loan guarantees as they grapple with the sharp decline in auto sales and a deepening crisis due to the bankruptcies of automakers, according to media reports.
They have reportedly prepared a presentation arguing that as many as 500 companies could face a severe cash crunch, including the possibility of liquidation.
LEA declined $0.02 or 4% and closed Wednesday's regular trading at $0.48 on volume of 14.36 million shares. In extended trading, LEA slid $0.16 or 33.33% and traded at $0.32. The stock has traded between $0.27 and $18.31 during the past year.
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