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Rating Action:

MOODY'S REVIEWS RATINGS OF DANA AND DANA CREDIT FOR POSSIBLE DOWNGRADE; SGL LOWERED TO SGL-3

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 Systems business.

Ratings placed under review:

Dana Corporation

Corporate Family, Ba2

Senior Unsecured, Ba2

Dana Credit Corporation

Senior Unsecured medium term notes supported by Dana, Ba2

Ratings lowered:

Dana Corporation

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 same date.

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 arrangements.

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.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Edwin Wiest
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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