SOUTHFIELD, MICH. (March 19, 2009)—Lear Corp., the world's second-largest automotive seat maker, said a Chapter 11 bankruptcy filing remains possible as it seeks out a long-term restructuring of its capital structure.
The broad-based restructuring sought by Lear is likely to alter the terms of its main line of credit, bonds and common stock. That may be possible only under court supervision after a voluntary Chapter 11 filing, the company said in its annual report, filed with the U.S. Securities and Exchange Commission.
In the filing, the company said it is in continuing discussions with its lenders and other stakeholders to reach a long-term agreement to restructure its capital structure.
If it is unable to reach an agreement by May 16, Lear will default under its main U.S. credit facility. And its lenders can call Lear's loans if a majority of the lenders vote to do so. If that happens, the company will be in default under its bond terms, and bondholders will be able to call the outstanding bonds.
A main credit facility default also could cause a "cross-default" of other borrowings.
"In any such event, we may be required to seek reorganization under Chapter 11," Lear said in the filing.
May 16 is looming large for Lear, as it must reach some form of agreement with lenders by then.
The company reached a short-term agreement to waive a default under its main line of credit through May 15, the company said today. The company had been in default since the end of last year.
The lenders, led by JPMorgan Chase Bank North America, agreed to waive any default stemming from Lear's exceeding its required leverage ratio and the company's receiving a "going concern" warning from its auditors.
Companies receive going-concern warnings when their auditors have substantial doubt about a company's ability to remain in business for the year to follow.
In recent days, suppliers Visteon Corp. and American Axle & Manufacturing Holdings Inc., along with two auto dealership groups, have said they have received or expect to receive going-concern warnings.
Another short-term agreement to waive a default could be negotiated, said Mel Stephens, Lear's director of investor relations.
“All options remain open," Stephens said. "There haven't been any avenues closed. There's the 60-day period where we're not in default, and we're actively discussing what will be the circumstance after that."