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Rating Action:

Moody's affirms Lear's B2 rating; outlook, stable

05 Dec 2006
Moody's affirms Lear's B2 rating; outlook, stable

Approximately $2.3 billion of rated obligations

New York, December 05, 2006 -- Moody's Investors Service has raised Lear Corporation's ("Lear") rating outlook to stable from negative and affirmed all other Lear ratings. The action follows Lear's announcement that it has entered into an agreement to contribute the assets of its North American Interior unit to International Automotive Components Group North America, LLC ("IAC North America"). While Lear will not receive any proceeds from the sale, indeed it will initially have to contribute $25 million of cash into IAC North America, the disposition will remove a business that has had negative EBITDA. The transaction will effectively increase Lear's cash flow by curtailing those losses and amount to a de-leveraging of the company. While automotive industry pressures in North America and Western Europe will continue to affect its remaining seating and electronics business units, Lear will be both better positioned within the B2 Corporate Family Rating and be less vulnerable to those pressures through the improved complexion of its cash flows.

Lear's North American interior business has had operating losses for the last two years. Combined with the earlier sale of its European interior unit, the segment would account for roughly $3.3 billion in annual revenue, combined operating losses of approximately $0.2 billion, and EBITDA of roughly ($0.1 billion). Prior to working capital requirements and at recent run-rates of the business, Moody's would estimate the transaction could save Lear some $0.2 billion in cash flow. While Lear will have to invest an initial $25 million into IAC North America, and may have to add a further $40 million if defined EBITDA targets for 2007 in IAC North America are not met, Lear has recently received $200 million from an equity investment from funds managed by Mr. Carl Icahn to effectively these requirements. Lear will receive a 25% interest in IAC North America in addition to its 33% interest in International Automotive Components Group LLC (into which it contributed assets of its European interior business). Lear expects to report a loss on the sale of the North American assets of approximately $675 million. Combined with the $29 million loss on the sale of the European business, $1,013 million of goodwill impairment charges take in 2005 and a further fixed asset impairment in that year of $82 million, Lear will have incurred a cumulative reduction in the value of its investment in the interior segment of some $1.8 billion over the last 15 months (prior to operating losses or other restructuring charges).

Adjusting 3rd quarter results pro forma for the transactions, Moody's would estimate Lear's debt/EBITDA would improve to 3.9 times compared to 4.3 times; EBIT/Interest would have been 1.9 times compared to 1.4 times; and positive free cash flow of around $0.1 billion would have been generated compared to the ($0.1) billion experienced. The transaction will also lower Lear's book net worth and raise its debt to book capitalization ratio.

The stable outlook considers the improved prospects for Lear's free cash flow which will make it less vulnerable to potential industry pressure in 2007 and beyond, While the company continues with ongoing exposure to build rates at General Motors, Ford and DaimlerChrysler, and the current mix of vehicles it supports may be adversely affected by recent trends in consumer vehicle preferences, its credit metrics are better positioned within the B2 Corporate Family rating and more likely to remain in an acceptable range for the rating category. The stable outlook also incorporates Lear's favorable liquidity profile, recently lengthened debt maturities, and the benefits of its new business awards which will, over time, facilitate improved customer diversification.

All other ratings have been affirmed. The last rating action was on November 20, 2006 when ratings were assigned to Lear's $900 million offering of unsecured notes.

Lear Corporation, headquartered in Southfield, MI, is focused on providing complete seat systems, electrical distribution systems and various electronic products to major automotive manufacturers across the world. The company had revenue of $17 billion in 2005 and has more than 110,000 employees in 34 countries.

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

New York
Edwin Wiest
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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