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Automotive parts supplier Lear Corp. LEA-Nsaid yesterday that it is preparing to file for Chapter 11 bankruptcy protection and has lined up financing to fund its operations while under court protection.

Lear, which makes automotive seating systems and electronics, said it is still negotiating with lenders and bondholders for additional support for its restructuring plan. In the meantime, the company said it has a commitment for $500-million in loans to finance its bankruptcy from a group of lenders, led by JPMorgan Chase & Co. and Citigroup Inc.

Lear operates three plants in Ontario, including seat-making operations in Whitby and St. Thomas that supply General Motors Corp. and Ford Motor Co. respectively. A third plant in Kitchener manufactures seat components.

Lear closed a factory in Ajax, Ont., last month and another in Windsor, Ont., last year.

Lear spokesman Mel Stephens declined to say how many of its lenders are on board with the Chapter 11 plan, how much more support it is seeking or when or where the Southfield, Mich.-based company plans to file for court protection.

"We intend to complete the restructuring as quickly as possible and emerge as an even stronger and more competitive partner to our customers," said Lear chief executive officer Bob Rossiter.

Lear said it expects to default on a $38-million (U.S.) interest payment that would service its 8.5 per cent senior notes due 2013 and its 8.75 per cent senior notes due 2016. A 30-day grace period on the payment expires on today, the company said.

Lear said operations outside the U.S. would be unaffected by a bankruptcy protection filing.

A filing for Lear would make it the first major automotive parts maker to seek court protection since Visteon Corp., the former parts arm of Ford, filed for Chapter 11 in May. Parts suppliers have been battered by the economic downturn as consumers continue to shun new car purchases and auto makers slash production.

Lear in particular is heavily dependent on the slumping North American and European auto markets, with 36 per cent of its sales coming from North America and 49 per cent coming from Europe.

The company, which posted $13.6-billion in sales in 2008, is a key supplier for both GM and Ford.

The pair represent Lear's two largest customers, a combined 40 per cent of its sales.

Lear is also one of Ford's key component and service suppliers, a part of Ford's Aligned Business Framework, which increases the auto maker's collaboration with the companies.

Auto sales in June continued to remain troubled, though the downturn that has plagued the industry for at least a year showed signs of easing, according to monthly sales reports from car makers yesterday. Industry-wide, sales fell 28 per cent in June, according to Autodata Corp. Volumes fell 35 per cent the first half of the year.

Meanwhile, a senior member of President Barack Obama's auto task force testified yesterday that the U.S. government will not continue to fund GM's operations if the auto maker doesn't get approval to sell its assets to a new company within the next 10 days.

"We have no intention to further fund this company if the sale order is not entered by July 10," said Harry Wilson, one of the Treasury officials overseeing GM's restructuring.

The No. 1 U.S. auto maker's government-backed plan for a quick exit from Chapter 11 hinges on the sale plan, which would allow it to leave behind many of the costs and liabilities that have made the company unprofitable in the past.

Associated Press with a file from Globe auto industry reporter Greg Keenan

LEAR CORP. (LEA)

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