U.S. auto parts maker Lear Corp filed for Chapter 11 bankruptcy protection on Tuesday, a day after setting out plans to restructure its $3.6 billion debt burden under a proposed deal with creditors.
The filing represents the largest in a string of recent failures of auto parts suppliers and highlights the pressure on the sector from sharply curtailed production and bankruptcies at automakers General Motors Corp and Chrysler.
Lear said the reorganization had won the support of the majority of its creditors and it expected to submit the proposals to the bankruptcy court in coming days.
We intend to proceed on an expedited basis and expect to submit the plan to the Bankruptcy Court within 60 days, Lear Chief Executive Bob Rossiter said in a statement.
Under the plans set out on Monday, Lear would convert $3.6 billion in debt into a combination of new debt, convertible stock and equity warrants.
The bankruptcy plan was supported by about 68 percent in principal amount of its secured lenders and more than 50 percent in principal amount of its bondholders.
Lear, which makes seating and electrical equipment for vehicles, ranks as the 11th largest global auto parts supplier by sales according to trade journal Automotive News.
The company was founded in 1917. It first sold shares to the public in 1994 and expanded through a string of 18 major acquisitions since then.
But the growth left Lear carrying a heavy debt burden and exposed to the slump in demand for the big SUVs and trucks that had represented a large share of its business.
Though it had begun extensive restructuring in 2005 to move some manufacturing operations to low-cost labor countries and consolidate its operating facilities, the economic slowdown and steep production cuts by General Motors Corp and Ford Motor Co hurt Lear sales.
GM is Lear's largest customer, representing about 23 percent of its global 2008 sales of $13.6 billion.
Annual production of automobiles in North America dropped to 12.6 million in 2008 from 15 million vehicles the year before. Production is projected to sag to 8 million vehicles this year, according to court documents.
A disproportionate share of (Lear's) past net sales and profitability in North America has been on light truck and large SUV platforms of domestic automakers, which are now experiencing significant competitive pressures as consumer purchasing patterns shift toward passenger cars, crossover vehicles and other vehicle platforms, Lear Vice President and Treasurer Shari Burgess said in court documents.
The company struggled still more when Chrysler shut almost all of its production as part of its bankruptcy reorganization.
The company had warned in March it might have to file for bankruptcy after breaching debt covenants at the end of last year and borrowing all of the $1.2 billion in its main credit facility.
The company made its filing in the U.S. Bankruptcy Court for the Southern District of New York, listing total assets of about $1.27 billion and total liabilities of about $4.54 billion.
The company had generated 2008 sales of about $13.6 billion. It operates about 210 facilities across 36 countries and provides automotive components for the daily assembly of approximately 12,000 vehicles in the United States and approximately 30,000 vehicles elsewhere in the world, according to court documents.
About 72,000 workers work for Lear worldwide.
At least 15 auto parts suppliers have filed for bankruptcy or had their assets seized by creditors in 2009, according to the Motor & Equipment Manufacturers Association, which represents the industry.
Lear's subsidiaries outside the United States and Canada are not part of the Chapter 11 filings.
The case is In re Lear Corp, US Bankruptcy Court, Southern District of New York, No. 09-14326. (Reporting by Ajay Kamalakaran and Hezron Selvi in Bangalore, Chelsea Emery in New York and Soyoung Kim in Detroit)