Automotive parts supplier Lear said Wednesday it is preparing to file for Chapter 11 bankruptcy protection and has lined up financing to fund its operations while under court protection.
Lear, which makes automotive seating systems and electronics, said it is still negotiating with lenders and bondholders for additional support for its restructuring plan. In the meantime, the company said it has a commitment for $500 million in loans to finance its bankruptcy from a group of lenders led by J.P. Morgan and Citigroup.
Lear spokesman Mel Stephens declined to say how many of its lenders are board with the Chapter 11 plan, how much more support it is seeking or when or where the Southfield, Mich.-based company plans to file for court protection.
"We intend to complete the restructuring as quickly as possible and emerge as an even stronger and more competitive partner to our customers," Lear CEO Bob Rossiter said in a statement.
Lear said it expects to default on a $38 million interest payment that would service its 8.5% senior notes due 2013 and its 8.75% senior notes due 2016. A 30-day grace period on the payment expires on Thursday, the company said.
Lear said its operations outside the United States would be unaffected by a bankruptcy protection filing.
A filing for Lear would make it the first major automotive parts maker to seek court protection since Visteon Corp., the former parts arm of Ford Motor Co., filed for Chapter 11 in May. Parts suppliers have been battered by the economic downturn as consumers continue to shun new car purchases and automakers slash production.
Lear in particular is heavily dependent on the slumping North American and European auto markets, with 36% of its sales coming from North America and 49% coming from Europe.
Lear, which posted $13.6 billion in sales for 2008, is a key supplier for both General Motors Corp. and Ford Motor Co. The pair represent the company's two largest customers and account for a combined 40% of its sales.
Lear is also one of Ford's key component and service suppliers, part of Ford's Aligned Business Framework, which increases the automaker's collaboration with the companies.
Auto sales in June continued to remain troubled though the downturn that has plagued the industry for at least a year showed signs of easing, according to monthly sales reports from carmakers Wednesday. Industrywide sales fell 28% in June, according to Autodata Corp. Volumes are down 35% the first half of the year.
Shares of Lear fell 17 cents, or 35%, to 31 cents in after-hours trading, following a loss of 2 cents, or 4%, at its close Wednesday of 48 cents.