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Rating Action:

MOODY'S ASSIGNS Ba1 LONG-TERM DEBT RATING TO LEAR CORPORATION'S $200 MILLION CONVERTIBLE BOND ISSUANCE

15 Feb 2002
MOODY'S ASSIGNS Ba1 LONG-TERM DEBT RATING TO LEAR CORPORATION'S $200 MILLION CONVERTIBLE BOND ISSUANCE

Approximately $200 Million of Debt Securities Affected.

New York, February 15, 2002 -- Moody's Investors Service has assigned a Ba1 long-term debt rating to Lear Corporation's (Lear) $200 million senior, unsecured zero coupon convertible bond offering with a final maturity of 2022. The new senior unsecured notes are to be offered and sold privately without registration under the Securities Act of 1933 (the Act), under circumstances reasonably designed to preclude a distribution thereof in violation of the Act. The notes have been structured to permit resale under Rule 144A. The proceeds of the issuance will be used to pay down outstanding amounts under the company's revolving credit line. Lear's Ba1 long-term debt rating reflects the company's leading market position as a global supplier of automotive interiors, offset by high financial leverage stemming from multiple debt-financed acquisitions, culminating in the $2.3 billion acquisition of United Technologies' (UT) automotive operations. The rating agency noted that as a result of these acquisitions, Lear has virtually completed its interiors' strategy. With the UT automotive operations acquisition, debt levels peaked in the third quarter of 1999, weakening debtholder protection measures. However, driven by a tightening of capital expenditures and reductions in working capital, debt protection measures have shown steady improvement since and should continue to do so in 2002 despite the challenging environment. Lear's negative rating outlook reflects Moody's industry-wide concern for further volume reductions both in North America and Europe. The rating agency expects, however, that Lear has the potential to outperform other automotive suppliers due to its increasing content per vehicle, new award backlog and high variable cost structure.

The rating agency noted that although the zero coupon convertible debt securities have a final maturity of 2022, there are put dates at the option of the debtholders in February 2007, 2012, and 2017. In addition, upon a change in control, the debt holders have the right to put the debt securities. Lear can satisfy these funding requirements on each of the put dates by the issuance of equity, paying cash, or a combination of both. In addition, there is conversion of the debt securities into equity at a fixed number of shares at the option of the debtholders if Lear's long-term debt rating falls below Ba3.

Lear reported net sales of $13.6 billion and net income (excluding non-recurring items) of $160 million in 2001 versus net sales of $14 billion and net income (excluding non-recurring items) of $277 million in 2000. The decline is due to weaker vehicle production, largely the Big 3 in North America, which is expected to continue late into 2002. Despite the weaker financial results, Lear has been aggressive in reducing costs and generating cash as debt levels have fallen roughly $700 million in the last two years. At December 31, 2001, the company had approximately $2.7 billion of debt, including an off-balance sheet accounts receivable securitization. Moody's expects Lear to continue reducing debt in 2002; however, further softening and uncertainty in the company's end-markets could negatively impact cash flow generation and constrict a further meaningful reduction in debt.

Lear Corporation, headquartered in Southfield, MI, provides products and systems for automotive interiors and electronics and is the world's fifth-largest automotive supplier.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
George A. Meyers
VP - Senior Credit Officer
Corporate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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