Lear plans bankruptcy exit Auto supplier expects quick emergence from Chapter 11 By Alisa Priddle and David Shepardson The Detroit News Southfield-based Lear Corp. is the latest auto supplier pushed into bankruptcy but the company expects to emerge quickly because it has already won significant support from key stakeholders for its restructuring plan. The so-called pre-packaged Chapter 11 filing by Lear Tuesday should pave the way for the seat maker to exit bankruptcy in four to six months. Lear has 'enough support from secured creditors and bondholders for reorganization on an expedited time frame,' said Durc Savini of Miller Buckfire & Co. LLC, the financial advisers Lear hired to help negotiate the term sheet heading into the filing. Lear also arranged $500 million in financing in advance to finance its bankruptcy. Lear filed in U.S. Bankruptcy Court for the Southern District of New York . The filing does not cover subsidiaries outside the United States and Canada. The Southfield-based company had signaled last week that it would seek court protection. It joins a growing list of high-profile bankruptcies in the beleaguered auto industry. They have included Visteon Corp., Delphi Corp., Chrysler LLC and General Motors Corp. More suppliers are expected to seek bankruptcy protection as vehicles sales continue to slide in the worst market in decades. However, the Lear bankruptcy will not follow the path of GM and Chrysler, both of which used section 363 of the Chapter 11 bankruptcy code. That section allows for bad assets to be left behind for liquidation, while the good assets are sold to a new company out of bankruptcy, said bankruptcy lawyer Bob Gordon of Clark Hill PLC in Birmingham, after comparing the court filings. Instead, the maker of automotive seats and electronics will restructure in bankruptcy, and sell non-core assets such as obsolete equipment and old inventory, but nothing of value will be sold, said Lear spokesman Mel Stephens. The goal is for an intact but fiscally stronger Lear to emerge from bankruptcy, he said. Savini described the Lear case as the first pre-packaged bankruptcy of a large, multinational major supplier in many years and said there are no material loose ends that should prolong the proceedings beyond six months. In pre-packaged cases stakeholders have reached agreements before filing, leaving few issues to be argued before the judge, which expedites the case. Lear said it entered into agreements supporting the restructuring plan with about 68 percent of its secured lenders and more than 50 percent of its bondholders. The exit plan would transfer the bulk of Lear's new equity to its secured lenders and note holders. Under the proposed restructuring plan, which needs to be approved by the court, Lear's suppliers will be paid in full subject to certain exceptions. Lear sought court approval to continue to provide pay and benefits to employees worldwide without interruption and to continue its normal course funding of its pension obligations in the U.S. and Canada. 'We intend to proceed on an expedited basis and expect to submit the plan to the Bankruptcy Court within 60 days,' said Lear Chairman Bob Rossiter. '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.' Lear says day-to-day operations will not be affected. 'In almost all cases, Lear is the sole manufacturer of certain essential component parts and vehicle systems for the customers,' said Erik Elie, vice president of purchasing, in a court document filed Tuesday. Lear is 'one of the companies that cannot fail,' agreed David Cole, chairman of the Center for Automotive Research in Ann Arbor. The company's filing was expected after it missed a key $7.2 million debt payment last week. The supplier began paring its operations in 2005, reducing capacity and shifting production to lower-cost countries for what amounted to about $250 million in cumulative annual cost savings through 2008, said Treasurer Shari Burgess. Lear closed 28 manufacturing plants and 10 administrative/engineering facilities, shedding 14,000 jobs. The 26-page petition lists $1.27 billion in assets and $4.5 billion in debts. The largest equity owner is Vanguard Windsor Funds with a nearly 8 percent stake. Lear's largest creditors are its lenders who are owed about $1.3 billion. It also owes an unspecified amount in pension obligations and $5.1 million to Johnson Controls Inc. Lear says its current shareholders will get nothing in the reorganization. Lear's new board will have nine directors, including the CEO. The company's lenders and bondholders will get to appoint the board. Current board members will be considered for the new board. Lear also wants to create a key employee incentive program for its 29 senior executives, allowing them to earn a bonus equal to their current salary, and in some cases bonuses could equal 140 percent of their current salaries over time. apriddledetnews.com (313) 222-2504 Lear Corp. About 72,000 employees worldwide, including 5,500 in the U.S. and Canada 210 facilities in 36 countries Lear builds 54,000 seats daily, accounting for 79 percent of its revenue Sales of $13.6 billion in 2008 Provides parts to build 12,000 vehicles a day in the U.S. and 30,000 vehicles elsewhere Source: Detroit News research What's next Continue to negotiate with Lear's 40,000 creditors Finalize Plan of Reorganization for submission within 60 days 