Lear Readies Bankruptcy Filing

Although the automakers have received the bulk of the news coverage during the meltdown of the automotive industry, the supplier chain is in the same dire condition as its better-known peers. With suppliers like Metaldyne and Visteon already in bankruptcy, the supply chain is quickly succumbing to a contracting market.

The Detroit News reports today that Lear will soon join Metaldyne and Visteon in bankruptcy court after missing a $38 million interest payment to bondholders on Tuesday. Although Lear spokesman Mel Stephens refused to comment on the timing of the filing, it is widely expected that the supplier could file as soon as today.

Citing sources “close to the situation,” The Detroit News said the bankruptcy paperwork was being finalized today and that $500 million in financing had been lined up to help in Lear’s restructuring efforts. Because of the impending interest payment, along with the expiration of a waiver allowing it to negotiate new terms for its line of credit, analysts had been expecting Lear’s filing this week.

Mike Wall, a supplier analyst with CSM Worldwide said Lear’s bankruptcy has “almost been predestined for the last month or so.”

According to Wall, Lear was not equipped to deal with the rapid drop in volume due to declining vehicle sales after years of expansions, mergers and acquisitions. Founded in 1917 in Detroit as a manufacturer of tubular, welded, and stamped assemblies for the automobile and aircraft industries, Lear has grown into a large global seat- and electronics-maker, supplying all major automakers. Today, GM and Ford are its biggest customers – they account for a combined 45 percent of Lear’s sales.

The fact that Lear was able to secure $500 million in financing will likely allow it to avoid the same fate as Delphi, another supplier and former subsidiary of GM that has languished in bankruptcy for years because of the lack of bankruptcy financing.

Source: The Detroit News