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Lear Suppliers Seek Cash, Faster Payments on Bankruptcy Concern
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By Alex Ortolani
June 17 (Bloomberg) -- Lear Corp., the auto-seat maker trying to amend its loan terms, is being asked by suppliers to use cash for new orders and speed payment on older bills on concern it may file for bankruptcy, the companies’ lawyer said.
Talks are under way with Lear on the partsmakers’ requests, said Dan Sharkey, of law firm Brooks Wilkins Sharkey & Turco in Birmingham, Michigan. He declined to identify his clients or specify what they provide to Southfield, Michigan-based Lear. The company wouldn’t comment.
“The companies that supply to Lear are very concerned about Lear’s viability,” Sharkey said today in an interview. “They’ve taken steps to get assured payments.”
Demands for upfront cash would add to the strain on Lear while renegotiating its borrowing after getting a waiver through June 30 on some conditions and a 30-day grace period for $38 million in interest payments due June 1. Lear said May 14 it hopes to restructure debt outside of Chapter 11 even as the U.S. auto market collapses.
Suppliers are often paid weeks after a shipment to a customer, and sometimes try to borrow money using those accounts receivable as collateral. That becomes difficult if lenders don’t believe the bills will be paid, said attorney Sharkey.
One partsmaker has stopped shipping to Lear while seeking new payment terms, according to a person familiar with the matter who asked not to be identified because the move hasn’t been announced.
No Disruptions
“We haven’t had any disruptions in production,” said a Lear spokesman, Mel Stephens, who declined to comment on any discussions with partsmakers or the talks with lenders.
Lear, the world’s second-biggest maker of automotive seats, purchases materials including leather, fabric and foam and gets a “substantial portion” of its components from other suppliers, according to a U.S. regulatory filing.
Lear posted losses of $1.05 billion in the past three quarters as U.S. auto sales tumbled to the lowest levels since the early 1980s and General Motors Corp. and Chrysler LLC slid toward bankruptcy. Revenue in 2008 declined 15 percent to $13.6 billion, the lowest since 2001. GM is Lear’s biggest customer.
The company’s 8.75 percent notes due in December 2016 fell 1.6 cents to 23.9 cents on the dollar at 1:12 p.m. New York time, according to Trace, the bond-pricing system of the Financial Industry Regulatory Authority. The yield was 44.1 percent. The bonds traded at 86.5 cents on the dollar a year ago.
Credit-default swaps tied to Lear bonds rose about 2 percentage points to 75 percent upfront as of 3:07 p.m., according to CMA DataVision. That’s in addition to 5 percent a year, meaning it would cost $7.5 million initially and $500,000 annually to protect $10 million of debt from default.
The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point is 0.01 percentage point.
Lear’s shares have lost 94 percent of their value in the past year, plunging to $1.27 at 3:44 p.m. in New York Stock Exchange composite trading.
To contact the reporter on this story: Alex Ortolani in Southfield, Michigan, at aortolani1@bloomberg.net
Last Updated: June 17, 2009 15:56 EDT
