Lear Corp buys time, but bankruptcy fears remain

19 Mar 2009


Auto parts supplier Lear Corporation has said it may not be able to avoid bankruptcy proceedings in spite of having bought time from its lenders. The company has time till 15 May to restructure its debt-heavy balance sheet.

Lear shares spurted after it announced that lenders have agreed to waive the existing defaults under its primary credit facility through 15 May. But the auto supplier warned in its annual report filed on Tuesday that it may eventually be forced to file for Chapter 11 bankruptcy protection unless it works out a long-term agreement with its lenders.

The Michigan-based company said it has hired financial advisors and is in discussions with its lenders and others in the hope of restructuring its finances. But, if a deal cannot be reached by 16 May, the company would be considered in default and lenders would have the right to speed up the company's debt obligations.

"A default under our primary credit facility could result in a cross-default or the acceleration of our payment obligations under other financing agreements," Lear said. "In any such event, we may be required to seek reorganisation under Chapter 11."

Lear said it continues to restructure its global operations and slash its costs and production in an effort to ride out the downturn, but added that it could not provide assurances regarding the length or severity of the current economic downturn or the company's ability to restructure its capital.

Auto suppliers have seen their sales tumble along with those of their clients, the automobile majors. Lear, which makes seating and electrical equipment, has suffered because of steep production cuts by General Motors Corporation and Ford Motor Company, which accounted for 42 per cent of its global revenue in 2008.

Observers feel that many auto suppliers may be forced into bankruptcy protection this year if the sales decline continues. Recently, auditors for both Visteon Corp and American Axle & Manufacturing Holdings Inc said they had doubts about the companies' abilities to continue as going concerns.
The suppliers have joined General Motors and Chrysler in petitioning the federal government for help. Suppliers alone have asked the Obama administration for up to $25.5 billion in aid.

Suppliers get paid 45 to 60 days after delivering parts, and analysts have warned of a wave of failures in March and April, when the nearly total shutdown in US auto production at the start of the year starts to hit their balance sheets.

In February, US auto suppliers submitted a formal request to the US Treasury for $18.5 billion in emergency funding, saying they have been shut off from credit at a time when payments from automakers are declining rapidly.

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