Lear Files For Bankruptcy, Icahn Slaughters Calf
The company which two years ago activist investor Carl Icahn thought was a steal at $37.25 just filed for bankruptcy (needless to say Suite #4700 at 767 Fifth Avenue is right now painted with sacrificial lamb blood: janitors who are told to clean it all up by tomorrow have just quit). In a press release the Southfield, MI parts supplier said it was hoping for a prompt Chapter 11 process and that it had already received a $500 million DIP compliments of JP Morgan andCiti (the latter probably has to pretend it is still a bank of some sort).
Lear Corporation (NYSE: LEA), a leading global supplier of automotive seating systems, electrical distribution systems and electronic products, announced today that the Company has reached an agreement in principle regarding a consensual debt restructuring with steering committees representing its secured lenders and its bondholders. The Company plans to commence shortly the proposed restructuring under court supervision pursuant to a voluntary bankruptcy filing under Chapter 11 of the United States Bankruptcy Code by the Company and certain of its U.S. and Canadian subsidiaries. The agreement in principle provides that, subject to certain limited exceptions, Lear's trade creditors will be paid in full.
Unfortunately, the Company seems to not have heard that the recession is over:
Given the unprecedented economic downturn and corresponding decline in global automobile production volumes, as well as continued difficult conditions in credit markets generally, Lear's Board of Directors concluded that in order to protect the long-term business interests of the Company, this protective action was the fastest and most effective way to delever its capital structure. During the reorganization process, Lear is committed to continuing to deliver to its customers the superior quality, service and innovation they expect.
Furthermore, an "expedited" restructuring will be contingent on whether the company's bondholders, in turn, have heard about the recession ending:
The Company's restructuring plan has the support of a majority of the members of a steering committee of the Company's secured lenders and a steering committee of bondholders acting on behalf of an ad hoc group of bondholders The Company is seeking support for its restructuring plan from additional lenders and bondholders. However, no assurance can be given as to the level of additional support for the restructuring the Company ultimately will be able to obtain from its lenders and bondholders.
Lastly, it is good to see that Citi is using that juicy TARP cash to lengthen the miserable existence of yet another doomed concern:
The Company has received commitments from a syndicate of secured lenders, led by J.P. Morgan and Citigroup, for $500 million in new money debtor-in-possession (DIP) financing. The proposed DIP financing, subject to customary conditions, provides additional financial flexibility that supplements Lear's significant existing cash balances. Additionally, the DIP agreement provides that, subject to certain conditions, the DIP financing will convert into exit financing with a three-year term upon Lear's emergence from Chapter 11.
Zero Hedge is now taking bets on whether the recovery in the ISDA CDS auction will be above or below 10 cents.
The Company anticipates being in default under its 8.50% Senior Notes due in 2013 and 8.75% Senior Notes due in 2016, as the 30-day grace period applicable to the semi-annual interest payment due on such notes will expire on July 2, 2009. In addition, in light of the pending reorganization plan, the Company has not made principal and interest payments due under its senior credit facility on June 30th.
Tomorrow should be an interesting day for the stock. If GM is any indication, look for the stock to jump from $0.48 to $48.00 on the grandmother of all short squeezes.