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Rating Action:

MOODY'S ASSIGNS B3 RATINGS TO DANA CORPORATION'S DIP FACILITIES AND WITHDRAWS PREPETITION RATINGS

28 Mar 2006
MOODY'S ASSIGNS B3 RATINGS TO DANA CORPORATION'S DIP FACILITIES AND WITHDRAWS PREPETITION RATINGS

$1.45 billion of Debtor-In-Possession financing

New York, March 28, 2006 -- Moody's Investors Service has assigned B3 ratings to the $1.45 billion debtor-in-possession ("DIP") financing of Dana Corporation ("Dana") as a Debtor-in-Possession. The DIP financing consists of a $750 million super priority senior secured asset based revolving credit and a $700 million super priority senior secured term loan B. The ratings are assigned on a point-in-time basis, will not be monitored going forward, and, as a result, do not have an assigned ratings outlook. The ratings reflect the collateral coverage of the facilities which are covered by separate first lien collateral packages with second liens on each other's collateral. The $750 million asset based revolving credit facility has super priority claim first lien on all domestic current assets and second lien on assets securing DIP Term Loan B. The revolving credit facility will be governed by a borrowing base arrangement consisting of an 85% advance rate against eligible accounts receivables and an 85% advance rate against the net orderly liquidation value of eligible inventory. The $700 million term loan B has super priority claim and first lien claim on all domestic assets (except for current assets), a pledge of the stock of foreign subsidiaries and a second lien on the assets securing the asset based revolving credit facility.

The ratings also reflect the current negative free cash flow of the debtor-in-possession entities, and the current challenging automotive environment for General Motors (GM) and other North American OEMs. Furthermore, the ratings consider the intrinsic uncertainties as to the outcome of Dana's bankruptcy case, the unknown ability to effect the necessary changes in Dana's domestic cost structure which are necessary to establish a viable enterprise that could emerge from bankruptcy and fully repay the DIP obligations. A plan of reorganization has not been developed at this time.

Moody's also is withdrawing all pre-petition ratings for Dana Corporation in conjunction with the March 3, 2006 voluntary filing by Dana and 40 of its domestic subsidiaries to reorganize under Chapter 11 of the U.S. Bankruptcy Code. None of the company's affiliates outside of the U.S. were included in the filing. The ratings for Dana Credit Corporation (DCC), the company's lease financing business, which was not included in the Chapter 11 filing were also withdrawn. While the company has historically provided information for rating purposes, Moody's does not believe that such information will now be available on an ongoing basis. Consequently, the rating agency will not be able to monitor the ratings going forward and consistent with Moody's policies, the ratings will be withdrawn. Please refer to Moody's Withdrawal Policy on moodys.com.

Ratings assigned on a point in time basis (will not be monitored going forward):

Dana Corporation as a Debtor-in-Possession

$750 million secured revolving credit, B3

$700 million secured term loan B, B3

Ratings withdrawn:

Dana Corporation

Corporate Family, Caa3

Senior Unsecured Notes, Ca

Speculative Grade Liquidity Rating, SGL-4

Dana Credit Corporation

Senior Unsecured Notes, Ca

The DIP facilities will be used to repay prepetition secured debt, issue letters-of-credit to support the company's domestic and international operations, support working capital requirements, capital expenditures, and general corporate purposes. The DIP facilities will be guaranteed by substantially all of Dana's direct and indirect domestic subsidiaries that filed for Chapter 11 protection. Both the revolving credit and term loan B will have a maturity of the earlier of 24 months, or the date of substantial consummation of a Plan of Reorganization.

The revolving credit will be governed by a borrowing base of up to 85% of eligible trade accounts receivables of the DIP Loan Parties, and up to the lesser of (A) 85% of the net orderly liquidation value of eligible inventory of the DIP Loan Parties and (B) 65% of eligible inventory. Moody's notes that revolving credit borrowings will be subject to concentration limits. The term loan B is secured by a first priority interest on all domestic assets (except for current assets), a pledge of stock of foreign subsidiaries and a second lien on all assets securing the revolving credit. Moody's notes that, in aggregate, Dana's foreign subsidiary operations are profitable.

Moody's assessment of risk for DIP facilities addresses two factors. The first is the probability of the company successfully reorganizing and emerging from bankruptcy with DIP indebtedness being paid in full. The second, should reorganization be unsuccessful, is the extent of protection provided to DIP lenders by the liquidation value and character of the collateral.

Moody's notes that, it is probable that Dana will emerge from bankruptcy. Dana is a leading global automotive supplier of light-and heavy-drivetrain products, structures, thermal, and sealing systems with long-standing relationships with leading OEMs. The revolving credit facility is expected to provide sufficient liquidity through maturity of the facilities. However, substantial cost and/or loss reductions will be required to return the domestic debtor entities to profitable operating income and a positive free cash flow position. As a result, increasing use of the DIP revolving credit is expected without profit improvement efforts for the domestic debtor entities going beyond the asset sales and cost reduction efforts announced by the company in October 2005. Dana must identify and implement immediate cost savings opportunities provided through the Chapter 11 process such as lease and contract rejections in order to restore profitability in the U.S. operations. Dana's profitable international operations are expected to continue to improve as the company benefits from shifting its manufacturing base to lower cost countries. While the previously announced asset sales are expected to support the company's liquidity through the Chapter 11 process, shortfalls in expected asset sale proceeds may be supplemented with cash generated in the company's non-debtor international operations through inter-company note repayments.

The extent of additional cost savings which can be achieved, additional asset sales or business closures, and their respective timing is presently unknown. Without substantial operating improvements, Dana's U.S. operations are expected to have negative free cash flow. These results incorporate North American production volumes and the loss of market share of the big 3 OEMs. Accordingly, Moody's believes that accomplishing additional material cost savings within the 24 month term of the facilities and in the current North American automotive environment could be challenging. The ratings also reflect the risk of disruptions from a strike at Delphi Corporation which would further negatively impact the difficult operating environment over the intermediate term for General Motors, one of Dana's major customers. The company continues to face ongoing price down agreements with its OEM customers. In addition Dana remains exposed to fluctuations in its raw material costs with a limited ability to pass increases on to customers.

The revolving credit will be supported by regular borrowing base reporting, and quarterly field examinations. The accounts receivables have been assessed through a field examination report. Third party appraisals have been performed to estimate the net orderly liquidation values of the inventory.

Third party appraisals have been performed to estimate the net orderly liquidation values of machinery & equipment and the fair market value of real estate supporting the term loan B. The value of the stock of the foreign subsidiaries is subject to opinions on appropriate market multiples. Assuming conservative multiples of the foreign subsidiaries' EBITDA, the value of the stock of the foreign subsidiaries results in the majority of the collateral coverage for the term loan B. The appraised value of the domestic real estate and machinery and equipment and to a lesser extent, the second lien interest in the revolving credit collateral, will comprise the minority of the term loan B coverage.

Compromised liabilities at Dana will include approximately $1.9 billion of debt. In addition, other liabilities subject to compromise will include pre-petition trade payables. The under-funded amounts of its domestic pension plans also add to these amounts. While the borrowing base arrangement and relatively assigned first priority security provides considerable collateral protection for the revolving credit and term loan B facilities, the documentation will include a minimum consolidated EBITDAR financial covenant ("EBITDAR" as defined with adjustments for certain restructuring and bankruptcy administrative costs as well as non-recurring items added back) which will include non-debtor foreign subsidiaries (including DCC and its subsidiaries on an equity basis) measured on a global basis. The strengths at international operations could offset weakness in the domestic borrower/guarantor group and limit the effectiveness of this covenant for the debtor entities.

The B3 ratings incorporate the above benefits and challenges of the collateral coverage of each the revolving credit facility and the term loan B facility. The ratings also reflect Moody's belief that under stressed scenarios, liquidation of the collateral would provide for full recovery of principal. In a liquidation scenario the revolving credit facility would be paid out of the current assets of the debtor entities first. While these are more liquid assets, Moody's notes the high business concentrations with Ford and GM and their respective business risks. The term loan B's value is supported by the profitable foreign operations, while also affected by the business risks of concentrations with Ford and GM. In addition, the ratings consider the efforts and uncertain timing on realizing the value of the foreign operations. The revolving credit facility and the term loan B facility have second lien interest in each other's collateral. The combination of the above benefits and challenges results in the ratings for the revolving credit and term loan facilities being the same.

Dana Corporation, headquartered in Toledo, OH, is a global leader in the engineering, manufacture and distribution of products and services for the automotive, engine, heavy truck, off-highway, industrial and leasing markets. Dana Credit Corporation is a wholly owned leasing and finance subsidiary of Dana Corporation, which is in the process of being liquidated. Dana had annual sales of approximately $8.6 billion in 2005 and employs 46,000 people in 28 countries.

New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Timothy L. Harrod
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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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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