Auto seating supplier Lear Corp said on Wednesday it would file for Chapter 11 in a reorganization supported by key secured lenders and bondholders and had obtained $500 million in bankruptcy financing.
Lear, which had been in talks with its lenders over the past month, said its board had approved a bankruptcy filing as the fastest and most effective way to reduce debt in the face of slumping global auto production.
The planned bankruptcy filing by Lear represents the largest in a string of recent failures of auto parts suppliers and highlighted the pressure on the sector from sharply curtailed production and bankruptcies at automakers General Motors Corp and Chrysler.
The Southfield, Michigan-based company said its restructuring plan had the support of most of the members of a committee representing its secured lenders and another group representing its bondholders.
Lear said it planned to file for bankruptcy shortly but did not specify a timeframe for the move.
A syndicate of secured lenders led by JPMorgan and Citigroup agreed to provide Lear with $500 million in debtor-in-possession financing for its bankruptcy that could be converted into exit financing once the supplier emerges from bankruptcy protection.
Lear had sales of $13.6 billion in 2008. Almost 80 percent of its sales were from auto seats supplied to customers such as General Motors Corp and Ford Motor Co .
It ranks as the 11th largest global auto parts supplier by sales according to trade journal Automotive News.
Lear, which was founded in 1917 in Detroit, went public in 1994 and grew through a string of 18 major acquisitions since.
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.
The company had warned 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.
Lear said its operations outside the United States and Canada would not be affected by the bankruptcy filing.
A waiver from lenders on its loan defaults expired on June 30. Lear was also near the end of a 30-day grace period on a $38-million bond interest payment it missed on June 1.
DISTRESS MOUNTS FOR SUPPLIERS
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.
Those suppliers include Visteon Corp , Metaldyne Corp and Noble International Ltd .
The Obama administration, which made $5 billion available to help auto suppliers obtain financing earlier this year, rejected a request by suppliers for up to $10 billion in additional financing last month.
Restructuring advisers and analysts have said the lack of new aid would result in a wave of bankruptcies because many suppliers lack capital to ramp up production now.
Chrysler began to restart production at its North American plants last week after a shutdown that began when it filed for bankruptcy protection on April 30.
GM, which is seeking to exit bankruptcy in a sale financed by the U.S. Treasury as soon as next month, has also slashed production. The embattled automaker said on Thursday it could not offer a third-quarter production forecast while it remained in bankruptcy.
In 2007, billionaire investor Carl Icahn launched a $2.85-billion takeover bid for Lear that would have offered shareholders $37.25 per share. It failed to win shareholder backing and Icahn subsequently sold off his stake.
Shares of Lear closed at 48 cents on Wednesday, down 4 percent ahead of the bankruptcy announcement. In July 2007, it had traded above $40.
(Reporting by Kevin Krolicki; Editing by Matthew Lewis and Tim Dobbyn)