Auto parts maker Lear Corp. files for bankruptcy
The move had been expected from the maker of vehicle seats and electronics, which missed an interest payment on its bond debt last week and revealed its intention to seek bankruptcy protection from its creditors. The Michigan-based company made the filing in the U.S. Bankruptcy Court for the Southern District of New York.
It listed $1.27 billion in assets and $4.54 billion in liabilities. Subsidiaries outside the U.S. and Canada are not part of the filings, the company said.
"We are conducting business as usual and are very pleased to have received strong support from our lender and bondholder groups for our debt restructuring plan," CEO Bob Rossiter said in a statement.
Under bankruptcy reorganization, a company can stay in operation under court protection while it sheds debts and unprofitable assets.
Attorneys for the company made their first appearance in bankruptcy court Tuesday afternoon.
Lear Attorney Marc Kieselstein said the company plans to file a plan of reorganization in the next 30 to 60 days and hopes to do so on the early end of that time frame. He said Lear and other auto parts makers have been battered by the weak economy, but the company has support for its reorganization from the majority of its debt-holders.
"What we have seen is a drop-off (in business) that has outpaced ... suppliers' ability to cut costs," Kieselstein said.
U.S. Judge Martin Glenn — acting in place of U.S. Judge Allan Gropper, who had been assigned Lear's case — approved typical "first day" motions, giving Lear permission to pay pre-bankruptcy wages, taxes and certain obligations to its customers.
Glenn also approved the company's use of cash collateral — or money used to continue funding the company's day-to-day operations — on an interim basis.
Lear is the first major automotive parts maker to seek court protection since Visteon Corp., the former parts arm of Ford Motor Co., filed in May. Auto parts suppliers have been hammered by the economic downturn as consumers continue to avoid buying cars and trucks and automakers slash production.
The bankruptcy reorganization filings by General Motors Corp. and Chrysler Group LLC and the idling of most of their factories has dealt a particularly hard blow to the auto supply base.
Lear has been particularly hard hit by the slump. It is heavily dependent on the struggling North American and European auto markets, with 36 percent of its sales coming from North America and 49 percent coming from Europe.
Lear, which posted $13.6 billion in sales for 2008, is a key supplier for both GM and Ford. The pair represent the company's two largest customers and account for a combined 40 percent of its sales.
On Tuesday, Lear said it is hoping for an "expedited" bankruptcy process. The parts maker said it has support from more than 50 percent of its bondholders and about 69 percent of its secured lenders for its reorganization plan.
In its bankruptcy filing, it listed its top 50 creditors, with many of the largest including its bondholders and suppliers. Its biggest creditor is the Bank of New York Mellon, which in its role as trustee represents nearly $1.3 billion in bond debt. Among its parts suppliers, Milwaukee-based Johnson Controls Inc. was the largest with about $5 million owed.
Shares of Lear, which trade on over-the-counter markets since the New York Stock Exchange delisted the stock, have plunged over the last year after the automobile market began slumping and the company began racking up quarterly losses. Shares closed Monday at 29 cents and fell 2 percent to 28 cents in Tuesday morning trading. During a bankruptcy proceeding, common shareholders are typically wiped out.
It announced it was preparing to file for bankruptcy protection last week after a grace period expired on a $38 million interest payment that would service its 8.5 percent senior notes due 2013 and its 8.75 percent senior notes due 2016.
It previously received a commitment for $500 million in "debtor-in-possession," or DIP, loans to finance its bankruptcy from a group of lenders led by J.P. Morgan and Citigroup. It has asked the bankruptcy court to allow it to continue to provide pay and benefits for its workers without interruption and to continue to allow it to provide payments for its U.S. and Canada pensions.
A hearing on whether to approve the use of the DIP funding is scheduled for July 30.
AP Business Writer Michelle Chapman and AP Auto Writer Bree Fowler contributed to this report.