Lear Enters Life After Bankruptcy

While the business bankruptcy boom claimed thousands of major corporations, many are now preparing to exit the lengthy process and resume work fully.

Lear Corp., a company that manufactures seats and electronics for automobiles, filed for Chapter 11 bankruptcy four months ago, reports the Wall Street Journal. Now the company may soon emerge from bankruptcy protection in a better position to thrive.

The company is among 50 other auto suppliers who decided to file for bankruptcy this year. Most were able to reorganize and avoid liquidation and full shut down.

Lear Corp’s chief executive, Bob Rossiter, arranged deals with lenders and creditors to fund a $500 million debtor in possession facility, a move not uncommon for companies in Chapter 11 bankruptcy.

These deals allowed the company to maintain the operations and provided the opportunity to continue business during the bankruptcy reorganization. The creditors received new equity in exchange for the deal.

Rossiter has been chief executive since 2003 and has attempted to cut costs while running the company. He moved operations for the company to lower cost markets in an effort to keep expenses down and win business in markets outside the U.S  – including Europe and Asia.

The company also reorganized supply and labor contracts to cut down on costs.

Rossiter’s main concern with Lear Corp. is their dependence on auto makers. The US auto industry has had a tumultuous year, and many car makers asked their suppliers to reduce prices, cut down on costs and incur debt to win valuable contracts.

Even with the company’s attempt to cut costs, they decided to file for Chapter 11 because of all debt obtained thus far.

Analysts believe the Chapter 11 bankruptcy will lower interest rates for Lear Corp. and help drive profits. Lawrence Orlowski, S&P’s (Standard and Poor) credit analyst said: “The new company will reduce its debt by 75 percent.”

Lear Corp. said its stock should be back up and trading in the New York Stock Exchange after they exit bankruptcy court. The equity is now owned by the creditors who supplied the monies for the Chapter 11 bankruptcy protection.

The equity is expected to be worth about $1.9 billion after the company gets out of bankruptcy protections.

Rossiter stated, “We think we fixed the business and we’re going to come out with investment-grade metrics.”

A Chapter 7 bankrutpcy would mean an end to the company, but a Chapter 11 business filing with a quick turnaround for bankruptcy protection may prove beneficial to their operations.