Issue: Apr 2006


Lear Announces Actions to Strengthen Financial Flexibility and Improve Operational Focus



Suspension of the Quarterly Cash Dividend

by John Larkin

The Board of Directors of Lear Corporation has approved several significant actions to strengthen the company's financial flexibility and reposition the company's operational focus. These include the approval of bank commitments for $800 million in secured term loans, an agreement in principle to contribute substantially all of Lear's European Interior Products business to the joint venture with WL Ross & Co. LLC and the suspension of the company's dividend program.

"The senior leadership of Lear understands that near-term challenges within the automotive sector are weighing heavily on investors' minds," said Bob Rossiter, Lear's chairman and chief executive officer. "By refinancing our 2007 debt maturities early, investors can be assured that the company is financially sound and focused on improving our longer-term operating performance."

Lear has received commitments from four of its largest global lenders, JPMorgan Chase Bank, N.A., Bank of America, N.A., Citibank, N.A. and Deutsche Bank, to provide Lear with an aggregate $800 million of secured term loans. The term loans will mature no earlier than March 2012 and are expected to be made on market terms. A portion of the proceeds will be used to refinance the company's $400 million term loan scheduled to mature in February 2007. The remaining proceeds are expected to fund the retirement of Lear's outstanding convertible senior notes and for general corporate purposes. The financing commitments are subject to customary terms and conditions.

In connection with the new term loan facilities, the company's primary credit facility would be amended and restated to, among other things, provide additional collateral for both the company's existing revolving credit facility and the new term loans, increase the interest rates applicable to the revolving credit facility and provide additional flexibility under the facility's existing financial covenants through 2007. The amendment and restatement of the company's primary credit facility will require the consent of lenders holding a majority of the outstanding commitments. The banks who provided the financing commitments for the term loans have agreed to support the proposed amendment. The amendment and restatement of the credit facility and the new term loan facility are expected to be completed in the second quarter.

Additionally, Lear's Board of Directors approved an agreement in principle to contribute substantially all of the company's European Interior Products operations to International Automotive Components Group (IAC), Lear's joint venture with WL Ross & Co. LLC and Franklin Mutual Advisers LLC. The transaction is consistent with the framework agreement the parties entered into last fall to explore strategic opportunities in the automotive interior components sector. IAC was recently formed to acquire the principal businesses of Collins & Aikman Corporation in Europe. In exchange for its European Interiors business, Lear expects to receive a 34% equity stake in the joint venture. The transaction is subject to negotiation of definitive documentation as well as customary conditions, including the receipt of all required regulatory approvals, and is expected to close before June 30, 2006.

Lear's European Interior operations that are being contributed to the joint venture include nine manufacturing locations generating about $750 million in annual sales, as well as certain management and operational support functions. The combined European Interior operations of Lear and Collins & Aikman would represent the largest enterprise of its kind in Europe, and provide a solid platform for improving ongoing operating performance.

The Board also suspended Lear's quarterly cash dividend program to provide an additional measure of liquidity cushion given current industry conditions. "While we regret having to suspend the dividend program, management is focused on preserving the company's financial flexibility in a very challenging industry environment," Rossiter continued. "At the same time, the entire Lear team is working to improve our ongoing financial results, with an emphasis on improving cash flow and taking further aggressive actions to address our under-performing Interior Products business globally."

Lear Corporation is one of the world's largest suppliers of automotive interior systems and components. Lear provides complete seat systems, electronic products and electrical distribution systems and other interior products. With annual net sales of $17.1 billion, Lear ranks #127 among the Fortune 500. The company's world-class products are designed, engineered and manufactured by a diverse team of 115,000 employees at 282 locations in 34 countries. Lear's headquarters are in Southfield, Michigan, and Lear is traded on the New York Stock Exchange under the symbol [LEA]. Further information about Lear is available on the Internet at http://www.lear.com/ .


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