Lear becomes third auto parts maker to go bankrupt this past month

Talk about a depressing statistic: Lear Corp. (LEAR) today became the third major auto parts supplier to file for Chapter 11 bankruptcy in the past month.

The company's fall from grace is hardly shocking given the precarious state of the U.S. auto industry and the economy overall. Back in March, Lear said its auditors had raised concerns about its ability to remain a "going concern" and warned that it might have to seek protection from creditors even though it won an agreement that gave it extra time to restructure its balance sheet.
Less than a week ago, Southfield, Mich.-based Lear announced it had reached an agreement in principle with steering committees representing its secured lenders and bondholders. The Wall Street Journal reports that support for the restructuring plan now sits at 68% and more than 50%, respectively.

"The debt restructuring, which would leave Lear with $1.1 billion in debt and $500 million of convertible shares, calls for trade creditors to be paid in full, except in limited situations," according to the paper.

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.

"We intend to proceed on an expedited basis and expect to submit the plan to the Bankruptcy Court within 60 days," said Chief Executive Bob Rossiter in a statement. "Our goal is to emerge from this process quickly and with an appropriate capital structure to support our long-term business objectives as a leading global competitor with the financial flexibility to build on our strengths and take advantage of future growth opportunities."

Whether Lear's plan is overly optimistic remains to be seen. Auto sales in June were dismal but showed some signs of improvement. Ford Motor Corp. (F) appears to be gaining market share at the expense of its bankrupt rivals General Motors Corp. (GMGMQ) and Chrysler L.L.C.. Sales are expected to hit 10 million this year, which is about the level the U.S. industry needs to be sustainable, according to analysts.

A vicious circle is created as broke car companies and auto parts suppliers drag each other down into a financial death spiral that will be difficult for them to extricate themselves.
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