By David Barkholz, Automotive News
Detroit, Michigan -- Lear Corp. said today it will soon file for Chapter 11 bankruptcy. The seat maker, reliant on the Detroit 3 for nearly 40 percent of sales, has succumbed to the worst vehicle sales in nearly 30 years.
Lear will seek Chapter 11 protection for its US and Canadian operations with $500 million in debtor-in-possession financing in place and a debt-restructuring agreement supported by steering committees of secured lenders and bondholders, according to a statement today. J.P. Morgan and Citigroup are leading the group financing the bankruptcy. The debtor-in-possession financing can be converted to exit financing under certain conditions, Lear said.
Lear will be the largest supplier to go under this year. It has been preceded into Chapter 11 this year by General Motors, Chrysler llc and at least nine other parts maker, including Visteon Corp. and Metaldyne Corp.
Lear set the stage for the bankruptcy filing June 1 when it failed to make a $38-million bond payment. The company had a 30-day grace period to meet the payment.
Reliance on GM
GM is Lear's largest customer, representing about 23 percent of global 2008 sales of $13500 million. Lear posted a net loss of $689.9 million in 2008. Ford Motor Co. accounted for another 14 percent of sales.
Lear, which makes seats and automotive electronics, ranks No. 11 on the Automotive News list of the top 100 global suppliers with worldwide sales of parts to automakers of $13600 million in 2008.
Lear, like other North American suppliers, has been hard hit by extensive production shutdowns at Chrysler and GM.
Chrysler restarted seven North American assembly plants this week after having shut them April 30 when it filed for bankruptcy protection. GM has had a series of revolving factory closings over the past month.
Late last year, citing fears that a Detroit 3 automaker would seek bankruptcy, Lear borrowed its entire $1200 million revolving line of credit. That, plus deteriorating cash flow, put the company in violation of its bank leverage covenant.
Lear has been working in recent years to win more business in Asia and diversify from its reliance on Detroit 3 light-truck and SUV business.
Nearly two years ago, Lear shareholders rejected a $37.25 per share buyout offer from billionaire investor Carl Icahn. The current 12 million shares are likely to be wiped out in bankruptcy as other debts are paid.
Icahn, who then held a 16 percent stake in the company, offered to buy all of the company's remaining shares in a deal valued at about $5300 million, including the assumption of debt. The buyout was initially approved by Lear's board of directors.
At the time, Lear ceo Robert Rossiter pushed for the deal, saying the original offer of $36 per share was in the best interest of Lear shareholders. He personally stood to earn $12.3 million through the sale of his common shares at the time.
But investor Richard Pzena opposed it. He called on other institutional investors to reject the offer on the grounds that the price was half of what Lear was worth. He did not return calls.
His Pzena Investment Management llc holds 5.4 million Lear shares, according to the Lear proxy.
Automotive News staff reporter Robert Sherefkin contributed to this story.