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Rating Action:

MOODY'S CONFIRMS Baa1 SENIOR DEBT RATING AND PRIME-2 COMMERCIAL PAPER RATING OF DANA AND DANA CREDIT; LOWERS ECHLIN'S SENIOR DEBT RATING TO Baa1 AND ITS COMMERCIAL PAPER RATING TO Prime-2

09 Jul 1998
MOODY'S CONFIRMS Baa1 SENIOR DEBT RATING AND PRIME-2 COMMERCIAL PAPER RATING OF DANA AND DANA CREDIT; LOWERS ECHLIN'S SENIOR DEBT RATING TO Baa1 AND ITS COMMERCIAL PAPER RATING TO Prime-2 New York, 07-09-98 -- Moody's Investors Service confirmed the Baa1 long-term debt rating for Dana Corporation (Dana), the Baa1 long-term debt rating for Dana Credit Corporation (Dana Credit), which enjoys the benefit of a formal support agreement with Dana, and the Prime-2 ratings for the issuance of commercial paper by Dana and Dana Credit. In a related action, Moody's lowered Echlin's rating on its shelf registration for senior debt to (P)Baa1 from (P)A2 and its rating for the issuance of commercial paper to Prime-2 from Prime-1. The outlook for the ratings of both Dana and Echlin is positive. While acknowledging that the merger of Dana and Echlin will complement Dana's existing operations and further strengthen its market position, the confirmations also consider Dana's already moderately leveraged capital structure, the challenges it faces in integrating Echlin's operations, and the possibility of future acquisitions. In bringing Echlin's ratings to a level consistent with Dana's ratings, Moody's noted that Echlin will become a subsidiary of the much larger Dana, which will have unrestricted access to Echlin's cash flows. The rating actions conclude a review initiated on May 4, 1998 following the announcement that Dana and Echlin had approved a definitive merger agreement.
The ratings confirmed are:
Dana Corporation - notes and industrial revenue bonds rated Baa1; shelf registration for the issuance of senior debt rated (P)Baa1; shelf registration for the issuance of subordinated debt rated (P)Baa2; shelf registration for the issuance of preferred stock rated (P)"baa2."
Dana Credit Corporation - Prime-2 rating for the issuance of commercial paper, which is supported by a formal Support Agreement between Dana Corporation and Dana Credit Corporation.
The ratings lowered are:
Echlin Inc. - shelf registration for the issuance of senior debt to (P)Baa1 from A2; and rating for the issuance of commercial paper to Prime-2 from Prime-1.
Escambia County, FL - long-term rating to Baa1 from A2 and short-term rating to VMIG 2 from VMIG 1 for industrial revenue bonds, which are guaranteed by Echlin Inc.
Moody's said that the merger of Dana and Echlin will significantly enhance Dana's global market position as a leading independent supplier to the auto industry. Echlin's expertise in the aftermarket complements the strength that Dana has in the vehicular (auto, light trucks, medium-duty and heavy-duty trucks), off-highway and industrial original equipment markets. Moreover, Dana's businesses mix continues to benefit from recent steps taken by the company to divest underperforming operations and to focus on its core businesses. The combined entity will also have critical mass in a consolidating industry that remains extremely competitive. Taken together, these factors have positive implications for the ratings of both Dana and Echlin.
Although Dana's earnings and cash flow may benefit from the increasing contribution of less cyclical aftermarket operations, the success of the merger depends on Dana's ability to realize the anticipated synergies and to integrate Echlin's operations, which are already in the process of being restructured. In addition, the assumption of Echlin's debt and off-balance sheet liabilities, despite the use of stock as currency in the transaction, add to Dana's existing debt levels and may restrict its financial flexibility to pursue future acquisitions. While Echlin has sufficient capacity to service its own debt obligations, there are no restrictions on Dana's ability to access Echlin's cash flow to support Dana's own obligations. Consequently, Echlin's ratings were brought to a level that is consistent with the ratings of Dana.
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. Headquartered in Branford, CT, Echlin is a global manufacturer of automotive parts including brake, engine, power transmission and suspension products, primarily for the aftermarket.
No Related Data.
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