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Global Credit Research - 13 Jan 2011
Approximately $1.5 billion of rated debt affected
New York, January 13, 2011 -- Moody's Investors Service raised the ratings of Dana Holding Corporation's
(Dana) - Corporate Family and Probability of Default Ratings to
B1 from B3. In a related action, Moody's raised the ratings
on the senior secured asset based revolving credit facility to Ba1 from
Ba3, and the senior secured term loan to Ba2 from B1. The
Speculative Grade Liquidity Rating also was affirmed at SGL-2.
The rating outlook is stable.
Probability of Default Rating, to B1 from B3;
Corporate Family Rating, to B1 from B3;
$650 million senior secured asset based revolving credit facility,
to Ba1 (LGD 2, 19%) from Ba3 (LGD2, 24%);
$869 million (originally $1.4 billion) senior secured
term loan, to Ba2 (LGD2, 26%) from B1 (LGD3,
Speculative Grade Liquidity rating at SGL-2.
The upgrade of Dana's Corporate Family Rating to B1 incorporates
the company's improved performance over the recent quarters and
our expectation that this improvement will be sustained over the intermediate-term.
Dana's EBIT margin has improved to 5% (including Moody's standard
adjustments) in the quarter ending September 30, 2010, compared
to a breakeven margin in the prior year period. This improvement
reflects the benefits from the significant restructuring actions in the
prior year and recovering global automotive demand. The company's
performance and balance sheet were strengthened further during 2010 by
debt reduction from the divestiture of its Structures business.
As of September 30, 2010, cash balances of $1.1
billion exceed funded debt. For the LTM period ending September
30, 2010, Dana's EBITA/interest approximated 1.3x,
supported by stronger results in the second and third quarters of 2010;
Debt/EBITDA approximated 4.4x.
Dana is well positioned to benefit from further revenue growth with improvement
in global economies and further customer growth. U.S.
retail demand is expected to increase to about 13.5 million units
in 2011 or about 17% above 2010 levels. Western European
demand is expected to modestly improve in 2011 over 2010 units sales.
Dana's light vehicle business (about 59% of total sales)
is largely North American and non-European and also should benefit
from regional growth in Asia and South America. The ratings also
incorporate our expectation of improving commercial vehicle production
in North America. About 23% of Dana's revenues are commercial
vehicle related, and are largely North American. Yet,
Dana's off-highway business (about 18% of revenues) is largely
exposed to the European markets which are expected to lag the global trend
in economic recovery.
Dana continues to have a high customer concentration with Ford (about
19%). However, its next largest customers are Paccar
(5%) and Hyundai (5%) which highlights the company's
strategy for customer and geographic diversity. The market for
axles, driveshafts, sealing products, and thermal products
is expected to remain competitive. Yet, since emerging from
Chapter 11 in January 2008, Dana has maintained a solid market position.
Dana recently announced net new business wins of approximately $846
The stable rating outlook considers Dana's improving operational
performance, supported by a stabilizing global economy and announced
net new business wins. These factors are balanced by expectations
of additional restructuring actions in 2011 while reinstating certain
compensation and benefit programs; other increases in cash requirements
to support new business growth, including capital reinvestment and
staffing; and commodity cost pressures as global economies recover.
The outlook also incorporates our expectation of continued strong cash
balances available for further debt paydown, after considering the
recently announced agreement to use about $120 million of cash
to increase a joint venture ownership in China.
The Speculative Grade Liquidity Rating of SGL-2 reflects good liquidity
over the next twelve months supported by strong cash balances and our
expectation of positive free cash flow generation over the near-term.
The company's cash balances at September 30, 2010 were approximately
$1,137 million ($96 million restricted). Dana's
positive free cash flow expectation incorporates higher required working
capital needs and higher reinvestment in plant and equipment to support
new business growth as industry conditions improve. External liquidity
is provided by the $650 million asset based revolving credit with
availability at September 30, 2010 of approximately $238
million, based on borrowing base limitations, and $146
million of outstanding letters of credit. Dana also maintained
an undrawn European receivables loan facility of Euro 170 million,
maturing in July 2012. Accounts receivable balances available as
collateral under the program would have supported a US$ equivalent
of $96 million in borrowings. Dana is expected to have ample
covenant cushion under the term loan facility despite test level step-downs.
There is capacity to incur up to $275 million of additional debt
in its foreign subsidiaries.
Factors that could lead to a higher outlook or ratings include sustained
revenue growth leading to improved operating performance generating EBIT/interest
coverage consistently over 2.0 times, and consistent positive
free cash flow generation, while maintaining adequate liquidity.
Future events that have potential to drive Dana's outlook or ratings lower
include the inability to win new contracts, production volume declines
at the company's OEM customers, and material increases in raw materials
costs that cannot be passed on to customers or mitigated by restructuring
efforts resulting EBIT/interest coverage approaching 1.5 times.
Other developments that could lead to a lower outlook or ratings include
deteriorating leverage or liquidity.
The last rating action for Dana Holding Corporation was on June 14,
2010 when the Corporate Family Rating was affirmed at B3 and the rating
outlook changed to positive.
The principal methodologies used in this rating were Global Automotive
Supplier Industry published in January 2009, and Loss Given Default
for Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
Dana, headquartered in Maumee, Ohio, is a world leader
in the supply of axles, driveshafts, sealing, thermal
management products, as well as genuine service parts. The
customer base includes virtually every major vehicle in the global automotive,
commercial vehicle, and off-highway markets. The company
employs approximately 21,000 people in 26 countries. Revenues
in 2009 were $5.2 billion.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Timothy L. Harrod
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's raises Dana's ratings, Corporate Family Rating to B1
250 Greenwich Street
New York, NY 10007
No Related Data.
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