SOUTHFIELD, Mich. — Lear Corp. has reached an agreement in principle regarding a consensual debt restructuring with steering committees representing its secured lenders and its bondholders. The company plans to begin proposed restructuring soon under a voluntary bankruptcy filing under Chapter 11 of the United States Bankruptcy Code by the company and certain of its U.S. and Canadian subsidiaries. The agreement in principle provides that, subject to certain limited exceptions, Lear’s trade creditors will be paid in full.
Lear’s subsidiaries outside the U.S. and Canada would not be part of the bankruptcy filing. The company said its operations outside the United States and Canada are well-capitalized, well-positioned and have a strong backlog of new business.
Given the unprecedented economic downturn and corresponding decline in global automobile production volumes, as well as continued difficult conditions in credit markets generally, Lear’s board of directors concluded that in order to protect the long-term business interests of the company, this protective action was the fastest and most effective way to delever its capital structure.
The company’s restructuring plan has the support of a majority of the members of a steering committee of the company’s secured lenders and a steering committee of bondholders acting on behalf of an ad hoc group of bondholders The company is seeking support for its restructuring plan from additional lenders and bondholders. However, no assurance can be given as to the level of additional support for the restructuring the company ultimately will be able to obtain from its lenders and bondholders.
The company has received commitments from a syndicate of secured lenders, led by J.P. Morgan and Citigroup, for $500 million in new money debtor-in-possession (DIP) financing. The proposed DIP financing, subject to customary conditions, provides additional financial flexibility that supplements Lear’s significant existing cash balances. Additionally, the DIP agreement provides that, subject to certain conditions, the DIP financing will convert into exit financing with a three-year term upon Lear’s emergence from Chapter 11.
Bob Rossiter, Lear’s chairman, chief executive officer and president, said, "This restructuring is being undertaken to maximize the long-term value of the company. Lear is a leading global Tier 1 automotive supplier with excellent technical capabilities in critical product lines – seating systems, power distribution and electronics, as well as a competitive, low-cost footprint, a diverse customer base, a solid backlog of new business and a strong cash position. With these strengths and the additional flexibility we will have as a result of the proposed DIP facility, we intend to complete the restructuring as quickly as possible, and emerge as an even stronger and more competitive partner to our customers."
Rossiter continued, "We want to assure everyone — customers, suppliers, employees and the communities of which we are a part — that Lear is committed to positioning our business for sustainable success. We believe that the agreement in principle with the steering committees of our secured lenders and bondholders to support our plan of reorganization will enable us to emerge expeditiously."
The company anticipates being in default under its 8.50 percent Senior Notes due in 2013 and 8.75 percent Senior Notes due in 2016, as the 30-day grace period applicable to the semi-annual interest payment due on such notes expired on July 2. In addition, in light of the pending reorganization plan, the company has not made principal and interest payments due under its senior credit facility on June 30.
