Lear files for bankruptcy, notes mixed; American Axle secures loan waiver, bonds finish weaker

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., July 7 - It was all about the autos in Tuesday's distressed debt market - or at least about the suppliers.

Lear Corp. announced it had officially filed for bankruptcy on Tuesday. As a result, the company's bonds - along with its new debtor-in-possession facility, which broke for trading as well - headed higher. But for the second straight session, the company's existing term loan lost ground.

Meanwhile, American Axle & Manufacturing Holdings Inc. said it secured a waiver from its bank lenders, giving it until the end of the month to regain compliance with covenants. But the news did not seem to help the company's notes and instead left them weakening throughout the trading day.

Overall, traders gave mixed reviews of the day as a whole.

"It was definitely a little better today," a trader said, adding that it was "not by a lot." He reported that around $1 billion in the secondary world changed hands, compared with less than $750 million the day before.

"The stock market got beat up, so that should stir up some business tomorrow," he opined.

But another trader, who had been absent Monday, disagreed with the other trader's characterization of the day.

"It was quiet for the most part," he said. "I think it was more busy yesterday, from what I hear."

Lear files, debt mixed

Seat maker Lear saw its bonds continue to move higher following news that the company had officially filed for bankruptcy protections.

"They did finally trade," said one trader, who saw about $25 million of the 8¾% notes due 2016 moving around 41. He called that better by a point or 2 on the day.

Another market source generically quoted the debt at 41 bid, 42 offered, also up 1 to 2 points.

At another desk, a trader echoed the 41/42 market, but added that the notes had gotten as high as 44 before "settling back in a little bit."

The bonds are trading flat, or without accrued interest, and have been since the company missed interest payments in June.

Lear announced it had filed for Chapter 11 protections on Tuesday, with backing from its creditors. The official filing comes nearly a week after the company inked an agreement in principle with a group of bank lenders and bondholders regarding a proposed restructuring.

About 68% of secured lenders and "more than 50%" of bondholders have already approved the plan, according to a press release.

Under the bankruptcy plan, Lear would have a new capital structure upon exiting that would consist of the up to $500 million exit financing first-lien term loan, a $600 million second-lien term loan and $500 million of series A convertible preferred stock.

There would also be a single class of common stock, including sufficient shares to provide for management equity grants, the issuance to the lenders of warrants to purchase common stock with a value of up to $25 million and the issuance to the holders of senior notes and certain other general unsecured claims of warrants to purchase 15% of the new common stock.

Specifically, senior credit facility claims would receive its pro rata share of the new second-lien term loan, the convertible preferred stock and approximately 26% of the new common stock.

Senior notes and other unsecured claims would receive approximately 46% of the new common stock and warrants to purchase 15% of the new common stock.

And, existing equity claims would have no recovery.

In court documents, Lear said it had about $4.5 billion in debt and $1.3 billion in assets.

"We are conducting business as usual and are very pleased to have received strong support from our lender and bondholder groups for our debt restructuring plan," said Bob Rossiter, chairman, chief executive officer and president, in a statement. "We intend to proceed on an expedited basis and expect to submit the plan to the bankruptcy court within 60 days. Our goal is to emerge from this process quickly and with an appropriate capital structure to support our long-term business objectives as a leading global competitor with the financial flexibility to build on our strengths and take advantage of future growth opportunities."

As previously reported, Lear has secured a $500 million debtor-in-possession facility from a syndicate of lenders led by JPMorgan Chase & Co. and Citigroup. The facility will also be used for the company's exit from bankruptcy.

The DIP loan hit the market on Tuesday, along with the news of the bankruptcy filing. Upon hitting the secondary world, levels jumped to above par, according to a trader.

The DIP term loan was quoted at 99½ bid, par offered on the break and then it moved up to 103 bid, 104 offered where it ended the day, the trader said.

Pricing on the DIP loan is Libor plus 1,000 basis points, with a 3.5% Libor floor.

According to an 8-K filed with the Securities and Exchange Commission, the exit facility will be priced at Libor plus 1,000 bps for the first 18 months, Libor plus 1,100 bps for the following 12 months and Libor plus 1,200 bps thereafter.

Like the DIP loan, the exit facility will also include a 3.5% Libor floor.

Also on Tuesday, Lear's existing term loan gave up a couple more points, with one trader speculating that the paper just "got crammed down with the new money DIP."

The term loan was quoted by two traders at 71 bid, 72 offered, down from 75 bid, 76 offered, and by a third trader at 71½ bid, 72½ offered, down from 75¼ bid, 77¼ offered.

This is the second day in a row that the term loan slid lower after running up at the end of last week to the 77 bid, 79 offered context on the restructuring news.

Lear is a Southfield, Mich.-based supplier of automotive seating systems, electrical distribution systems and electronic products.

American Axle slides on bankruptcy fears

Following on the coattails of Lear's bankruptcy news, American Axle announced it had secured an amendment and waiver on its revolving credit facility.

One trader said the 5¼% notes due 2014 were "maybe down a little" around 28, on $15 million traded.

"It doesn't trade all that often," the trader noted. "It's hard to imagine that it was high-grade just two years ago."

Another market player quoted the issue at 27.75bid, 28.75 offered, down about 3 points, while yet another source placed the debt around 28.

Under the terms of the amendment and waiver, American Axle has until July 30 to meet covenant requirements on its revolver.

But despite the acquiring of the amendment, bankruptcy worries abound for the company, which relies on General Motors Corp. for about 75% of its revenue. GM filed for Chapter 11 protections on June 1.

Given that, one trader said that Axle's slide Tuesday "doesn't surprise me. I think all of these [parts supplier] companies are hoping for a federal bailout. But I don't think it's coming. The suppliers are kind of left the lurch here in a big way, and it remains to be seen just what's going to happen to them. It's going to be up to the lenders, what they decide to do with these companies; otherwise, they're all going to file."

The problem for Lear and American Axle, he continued, is "there's no financing available to them in the public market and if you have a maturity due, or you need to refinance in some way, you're at the mercy of the market, because I don't think the window is open for auto suppliers."

He noted that such companies also have exposure to the faltering carmakers. In its bankruptcy filing, GM listed nearly $45 million owed to Lear and almost $27 million owed to American Axle, among other trade creditors.

Elsewhere in the autosphere, TRW Automotive Holdings Corp.'s 7¼% notes due 2017 declined half a point to 72.5 bid.

Paul Deckelman contributed to this article.

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