Lear Corp. said July 1 that it would file for Chapter 11 bankruptcy as the seat maker reliant on the Big Three automakers for nearly 40 percent of its sales succumbed to the worst vehicle sales environment in nearly 30 years.
Lear's statement said it will seek Chapter 11 protection for its U.S. 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.
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.
Southfield, Mich.-based Lear will be the largest automotive supplier to go under in 2009, following General Motors Corp., Chrysler LLC and at least nine other parts makers, including Visteon Corp. and Metaldyne Corp., into bankruptcy.
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 obligation.
Lear in 2007 spun off most of its hard plastics operations to International Automotive Components LLC for a share in the Dearborn, Mich., auto interiors firm. The move was designed to allow Lear to concentrate on seating and electronics.
The company still uses plastics extensively, mostly urethane foam in seating. It was among the first automakers to introduce a soy urethane blend for auto seating, and also has developed a structural expanded polypropylene to replace some urethane and wire in seats to reduce weight and size.
GM is Lear's largest customer, representing about 23 percent of global 2008 sales of $13.5 billion. For the year, Lear posted a net loss of $689.9 million in 2008. Ford Motor Co. accounted for another 14 percent of sales.
Lear, like other North American suppliers, has been hard hit by extensive production shutdowns at Chrysler and GM.
Chrysler recently restarted seven North American assembly plants after having shut them April 30 when it filed for bankruptcy protection. GM has had a series of revolving factory closings during the past month.
Late in 2008, citing fears that a Detroit-based automaker would seek bankruptcy, Lear borrowed its entire $1.2 billion revolving line of credit. That, plus a 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 to diversify from its reliance on business from Big Three-built light trucks and SUVs.
Nearly two years ago, Lear shareholders rejected a $37.25 per share buyout from billionaire investor Carl Icahn, who then held a 16 percent stake in the company.
Icahn offered to buy all of Lear's shares in a deal valued at about $5.3 billion, including the assumption of debt. The buyout initially was approved by Lear's board of directors.
CEO Robert Rossiter had pushed for the deal, saying the original offer of $36 per share was in the best interest of 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. Pzena Investment Management LLC holds 5.4 million Lear shares, according to the Lear proxy statement. Richard Pzena did not return calls seeking comment.
The current 12 million shares are likely to be wiped out in bankruptcy as other debts are paid.
Automotive News staff reporter Robert Sherefkin and Plastics News staff reporter Rhoda Miel contributed to this story.