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16 Sep 2005
MOODY'S REVIEWS RATINGS OF DANA AND DANA CREDIT FOR POSSIBLE DOWNGRADE; SGL LOWERED TO SGL-3
Approximately $2.3 billon of credit obligations are affected
New York, September 16, 2005 -- Moody's Investors Service has placed the ratings of Dana Corporation
("Dana") and Dana Credit Corporation ("Dana Credit")
under review for possible downgrade. The action follows the company's
announcement of a significant downward revision in its guidance for 2005
full year earnings, a possible requirement for a substantial valuation
allowance against its U.S. deferred tax assets, the
potential re-statement of its second quarter financial statements,
and the impact the reduced earnings guidance and any required deferred
tax allowance may have on certain financial covenants under its multi-year
bank credit facility. The company's earnings expectations
have been adversely affected by higher raw material and energy costs which
are now anticipated to be above earlier assumptions. In addition,
its Commercial Vehicle segment has been unable to achieve targeted cost
reductions and manufacturing efficiencies. Furthermore, reduced
light vehicle production volume has affected results at its Automotive
Ratings placed under review:
Corporate Family, Ba2
Senior Unsecured, Ba2
Dana Credit Corporation
Senior Unsecured medium term notes supported by Dana, Ba2
Speculative Grade Liquidity to SGL-3 from SGL-2
Dana has announced a revision to its 2005 full-year earnings guidance
to a range of $90-$105 million from $196-$219
million, a reduction of 53% from the midpoint of the respective
ranges (the ranges are prior to any gains or losses on divestitures and
asset sales or other unusual items). For the first half of 2005
Dana reported net income, exclusive of unusual items and prior to
any restatement, of $71 million. Based on the revised
full year guidance, the company's earnings during the second half
of the year will show a significant deterioration from prior expectations.
At June 30, 2005 the company's deferred tax asset was approximately
$740 million. Any write down of the asset would not have
a cash impact, but would affect reported GAAP earnings and book
net worth, which was roughly $2,358 million at the
The review will focus on the impact of prospective lower earnings and
cash flow to Dana's credit metrics, and the actions that the
company will take to correct these shortfalls. The review will
also consider the implications for Dana's liquidity profile of reduced
cash flow and potentially narrowed headroom under financial covenants,
potential implications for existing debt holders of actions necessary
to achieve covenant waivers or amendments if needed, and the significance
of internal control matters, if any, that may arise from the
investigations undertaken by the company and its auditors into the matters
leading to a potential re-statement. In addition,
the review will consider any changes in strategy or the timing of strategic
actions which may be considered by management and how these may affect
the risk profile of Dana.
The SGL-3 rating represents adequate liquidity over the next twelve
months. At June 30 the company had approximately $666 million
of cash on its consolidated balance sheet. This amount continues
to exceed scheduled maturities and amounts required for cash collateral
for letters of credit and surety bonds ($71 million at June 30)
as well as minimal operating balances for foreign and domestic operations.
Cash flow from operations is anticipated to be weaker than prior expectations
and does have seasonal variations driven by OEM production schedules.
External liquidity is provided by the company's $400 million
revolving credit which is committed until March 2010, subject to
covenant compliance, and a $275 million accounts receivable
securitization facility which requires annual renewal. As reported
by the company, the compliance with the financial covenants under
the bank credit facility (next measured at September 30) is under review
and any non-compliance could affect amounts available. Dana
has initiated discussions with its banks in this regard. At June
30 the company had $175 million borrowed under the revolver and
$110 million outstanding under the accounts receivable program.
Financial covenants include: net senior debt/tangible net worth
(maximum of 1.1:1), EBITDA less capex/Interest (minimum
of 1.25 times at Sept. 30 but rising to 2.25 times
at December 31, and 2.5 times thereafter), and net
senior debt/EBITDA (maximum 3.25 times at September 30, 2.75
times at December 31, and 2.5 times thereafter). The
accounts receivable securitization facility could be terminated by its
providers if Dana's credit ratings are lowered below Ba3 by Moody's
and BB- by Standard & Poors. The bank credit facility
is currently unsecured and provides some flexibility for alternate liquidity
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 sales of $9.1 billion in 2004 and employs 46,000
people in 28 countries.
Michael J. Mulvaney
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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