Lear looking to gain financial flexibility through credit facility amendments

By Jennifer Lanning Drey

Portland, Ore., Jan. 29 - Lear Corp. hopes to increase its financial flexibility by launching a formal amendment process to modify the credit agreement on its primary credit facility after talking to its broader bank group over the next few weeks, Matthew Simoncini, chief financial officer of Lear, said Thursday during the company's fourth-quarter earnings call.

"Obviously, what we're looking for is going to be financial flexibility to get through what's going to be a very difficult next 18 months by any stretch of the imagination," Simoncini said.

The company is already in discussions with the co-agents under the facility after breaching the leverage ratio covenant contained in the agreement during the fourth quarter.

"These discussions have been constructive and are continuing," Simoncini said.

The covenant breach resulted from Lear's decision not to repay amounts outstanding against the credit facility after the company borrowed $1.2 billion during the fourth quarter.

Simoncini said the draw was made to protect against potential disruptions in the capital markets and uncertainty in the automotive industry.

Lear ended 2008 with cash and cash equivalents of $1.6 billion, which provided ample resources to satisfy its ordinary course business obligations, he said.

Cash flow goes negative

In the fourth quarter, free cash flow was negative $38.3 million, compared with free cash flow of $170.9 million in the fourth quarter of 2007. The decline in free cash flow reflects lower earnings and higher cash costs for restructuring, Simoncini said.

Lear posted a $688.2 million net loss for the fourth quarter, compared with net income of $27.0 million in the year-earlier period. Fourth-quarter net sales were $2.6 million, compared to net sales of $3.9 billion in the same period of 2007.

The decline in net sales primarily reflects a significant reduction in production in North America and Europe.

In response to the challenging economic environment, Lear's immediate attention is on maintaining a lean operating structure that will minimize cash burn. Accordingly, capital projects will be prioritized to provide the best return, and inventories will be minimized, Bob Rossiter, chief executive officer of Lear, said Thursday.

"In this very challenging environment, we intend to keep our focus on reducing costs, proactively managing our liquidity position, maintaining financial flexibility and positioning the company for the eventual industry recovery," Simoncini said.

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

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