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Lear Nears Bankruptcy; Stock Plummets

Scott Eden

Lear(LEA) shares lost nearly a third what little value they have after a report in the New York Post indicated that the auto-parts maker may file for bankruptcy within days.

It looks increasingly unlikely that Lear will manage to negotiate a deal with its debtholders outside of bankruptcy court, the newspaper reported, citing an anonymous Lear creditor. The company has until June 30 to cobble an agreement together under a waiver it had received in May. Lear has been in violation of its debt covenants since Dec. 31.

The Wall Street Journal reports Lear is working on a pre-packaged bankruptcy before the June 30 deadline in which it must make a $38 million interest payment on two of its bonds.

If the prepackaged-bankruptcy deal falls apart, Lear could file for a traditional-style bankruptcy next week, the Journal reports, citing several people familiar with the situation.

Lear spokesman Mel Stephens called any talk of Lear entering Chapter 11 "speculation and rumors." He said, "There is no news from the company. The company has no comment on any of the speculation and rumors."

The market appeared to disagree. In frantic trading Thursday afternoon, Lear shares were changing hands at 61 cents, down 31%, on nearly triple the daily average volume. The stock has recovered slightly from session lows of 57 cents.

Earlier this month, the federal government rejected an appeal by the auto-parts industry for up to $10 billion in further aid. Two suppliers have already gone bankrupt this year -- Visteon and Metaldyne -- as parts makers struggle to survive in the face of moth-balled car factories and bankrupt motor companies. American Axle(AXL) is also widely feared to be on the brink.

When General Motors(GMGMQ) filed for its own Chapter 11 protection, Lear was owed almost $45 million, making it GM's ninth largest creditor.