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Auto Task Force Busy Behind Scenes as Lear Corporation Teeters on the Edge of Bankruptcy

So far the Task Force is not being very successful at actually exiting the auto business as promised.

by on Jun.30, 2009

Lear Headquarters, Southfield, Michigan

In 2008, Lear Corporation ranked at number 157 among the Fortune 500.

While Lear Corporation, one of the nation’s largest automotive suppliers, is on the edge of bankruptcy, the Obama Administration’s Automotive Task Force appears to be actively lining up support from the private sector to help auto suppliers.

Following the Task Force’s rather blatant intervention over the weekend in the GM bankruptcy, the Task Force appears to be working behind the scenes to secure private money for parts suppliers after it refused further taxpayer support earlier this month, said one Detroit area consultant who asked not to be identified.

Lear, according to at least one report, is in line for $500 million worth of debtor in possession financing that was virtually unavailable at any price only 60 days ago.

Financial center blogs also speculated that the Task Force helped TRW renegotiate key covenants with key suppliers.

Meagan Hardcastle, a director and turnaround specialist for O’Keefe & Associates in Bloomfield Hills, said all kinds of suppliers are facing financial issues right now.

“We got huge liquidity problems in the supply base right now. We think several big suppliers are going to file for Chapter 11 protection,” she said.

So far this year, 21 major automotive suppliers have filed for protection under Chapter 11 of the U.S. Bankruptcy Code, according to the Original Equipment Suppliers Association.

Lear, which is listed on the Fortune 500, was slated to make an interest payment today on its outstanding debt after using a 30-day grace period that was available to the company.

Officials from the company also declined to comment on reports that it was preparing to file for bankruptcy protection. “We don’t comment on speculation,” said spokesman Mel Stephens.

Meanwhile the price of Lear common stock had dropped below the price of a cup of coffee. Even after a surge in value on Tuesday, a single share of Lear was worth about 55 cents.

“We believe (Lear’s) shares are sharply lower on bankruptcy fears. Separately, we are widening our projected ’09 loss per share by 99 cents to $5.39, as we expect Lear to suffer from reduced industry demand, lost market share of key customers, and the shift from pickup trucks and SUVs,” Standard & Poors said in a note to investors.

“While an alternative financial arrangement remains possible, we are lowering our 12 month-target by 50 cents to 50 cents, our lowest possible,” the note said.

Lear was out of compliance with essential loan covenants during the winter and still averted bankruptcy, said sources familiar with the company’s inner workings.

Lear is a major supplier of  seat systems, electronic products and electrical distribution systems to General Motors, Ford Motor and Chrysler Group, as well as Asian automakers operating in the U.S. with annual net sales of $13.6 billion in 2008. Lear  has 80,000 employees at 210 locations in 36 countries.

Lear was founded in 1917 in Detroit as American Metal Products, a manufacturer of tubular, welded and stamped assemblies for the automotive and aircraft industries.  Lear has grown with 18 major acquisitions since 1994, when Lear went public, and as a result the company is heavily in debt.

Two other suppliers, Metaldyne and Visteon Corporation, filed for Chapter 11 protection recently and the Troy-based Original Equipment Suppliers Associates estimates that 21 large suppliers have filed for bankruptcy protection since January 1.

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