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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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