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 in a statement that the restructuring had won the support of the majority of its creditors and that it expected to submit the proposals to the court within 60 days.
Later in the day, Lear won court approval to use its cash to meet day-to-day obligations, including wages and taxes.
Under plans set out on Monday, Lear would convert $3.6 billion of debt into a combination of new debt, convertible stock and equity warrants.
The company also received commitments for $500 million of debtor-in-possession financing from a syndicate of secured lenders led by JPMorgan Chase & Co and Citigroup .
The federal judge overseeing the first hearings of the case, Martin Glenn of U.S. Bankruptcy Court in Manhattan, scheduled a July 30 hearing for final approval of the DIP.
Glenn's colleague Allan Gropper will take over the case when he returns in mid-July. No reason was given for his absence.
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.
In this environment, in this industry, (that) is a tremendous achievement, James Sprayregen, a partner at Kirkland & Ellis LLP, which is representing Lear, told Reuters in an interview on Tuesday.
That enables the company to be in a position to rapidly exit from bankruptcy and get back to business in a more deleveraged, healthy capital structure.
Southfield, Michigan-based Lear makes seating and electrical equipment for vehicles and 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 heavily indebted and vulnerable to the slump in demand for the big SUVs and trucks that had represented a large share of its business.
Though it began 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 23 percent of its global 2008 sales of $13.6 billion.
North America production of automobiles dropped to 12.6 million in 2008 from 15 million 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 operates about 210 facilities across 36 countries, according to court documents. Lear has a worldwide workforce of about 72,000.
Lear 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 $1.27 billion and total liabilities of $4.54 billion. The U.S. filing includes some Canadian subsidiaries, while other Canadian units are expected to file parallel cases in the Ontario Superior Courts Commercial List.
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.
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 and Phil Wahba in New York and Soyoung Kim in Detroit; Editing by Steve Orlofsky)