From The Blade
TOLEDO, OH — Unable to get more credit and fend off mounting debts, Toledo’s Dana Corp. on Friday filed for bankruptcy protection, vowing to continue operating. The venerable Toledo, OH, firm has dealt with a series of financial problems in the last six months that ultimately led to the filing for protection from its creditors. Although the filing was not unexpected, it nevertheless was psychologically gut-wrenching to one of the nation’s largest independent automotive parts makers.
Executives said the firm will continue with previously announced cutbacks, including selling three business units and reducing benefits. But left unsaid was whether more jobs would be lost. Dana filed Chapter 11 in U.S. Bankruptcy Court in New York City, listing assets of $7.9 billion and debts of $6.8 billion. The filing was made because of liquidity, or cash flow, problems. The 102-year-old firm told employees Friday morning, and as word spread through Wall Street, its stock price plunged to 69 cents and trading was suspended as the New York Stock Exchange prepared to delist the shares.
Mike Burns, company chairman and chief executive, said in a statement: “The Chapter 11 process allows us to continue normal business operations while we restructure our debt and other obligations and enhance performance.” He added: “This is an extremely difficult but necessary and responsible decision that will provide us with the time and opportunity to strengthen our performance and achieve a sustained turnaround at Dana.”
Employees and retirees were emotional. “You hate to see a company you spent your entire life at fall apart like that,” said Toledoan Jan Konoff, who retired last year after 42 years with Dana. Chuck Hartlage, company spokesman, said of employees, “I’m sure some people were shocked. I’m sure some people were relieved.”
Industry analysts, watching Dana miss interest payments on its bonds and experiencing a $1.3 billion loss in its third quarter, increasingly expected bankruptcy was coming. The firm, they said, was experiencing liquidity problems and needed to hold off its creditors. It has been pinched by higher steel costs, payment demands from suppliers, and other bills as orders from automakers declined and its heavy-truck unit continued having problems. It was unable to renegotiate credit.
By filing for bankruptcy protection, its debts will be frozen until the court decides payments. To stay out of bankruptcy and keep suppliers at bay, the maker of axles and other vehicle parts needed to raise roughly $1 billion in cash and credit within days, said Sean Egan, managing director of Egan-Jones Ratings Co. “They simply couldn’t do it,” he said. “They probably couldn’t do it if they had two months.”
So that it can operate during the bankruptcy, however, it obtained $1.45 billion in financing from Citigroup, Bank of America NA, and JP Morgan Chase Bank NA. Bankruptcy Judge Burton Lifland yesterday authorized Dana to use up to $800 million of that amount to pay wages, benefits, suppliers, and other expenses while he weighs an overall financing package, the company said. Dana will need $1.1 million to pay its directors and officers, $3.9 million to pay consultants, and $64 million to pay its 19,000 U.S. employees for the next 30 days, the company said. The filing covers Dana and 40 U.S. subsidiaries, but its leasing arm, Dana Commercial Credit, is not included.
Some analysts said Dana did not respond quickly enough to rising steel prices two years ago, and was hurt by plunging sales of gas-guzzling pickups and sport-utility vehicles, its bread-and-butter customers. Dana has admitted operational problems in its big-vehicle unit, within which accounting irregularities caused a $44 million lowering of profit for five years and an ongoing investigation by the U.S. Securities and Exchange Commission. Dana’s financial footing has been subject to scrutiny since it first announced last fall it would need to restate profits, followed by the announcement of its second major restructuring in four years.
Then, it reported it lost $1.3 billion in last year’s third quarter, it delayed an announcement on paying a dividend, and last week missed a $21 million interest payment on its bonds. Its stock price plunged, and it was removed from the widely watched Standard & Poor’s 500 index. Customers and suppliers with contracts cannot, under bankruptcy, refuse to do business with Dana, but more plant closings or sales are possible, said Marc Santucci, a supplier analyst for ELM International Inc. The company also will want to renegotiate union contracts as well as change pension and health-care programs for employees even if it does not close or sell more operations, he said.
It’s too early to tell what steps Dana will need to take to turn its business around, said company spokesman Hartlage. At least for now, employees will continue to accrue pension benefits as usual and receive pay and health-care coverage, he said. The pensions of retirees are protected by law, and there are no immediate plans to change their health-care benefits or life insurance, he added. Dana’s bankruptcy is the largest one of 2006, based on assets, and it is the third-largest among automotive suppliers. It joins fellow suppliers Federal-Mogul Corp., Delphi Corp., Tower Automotive Inc., Collins & Aikman Corp. and Meridian Automotive Systems Inc. in bankruptcy. Federal-Mogul has been able to continue operating. “They’ve been able to run the business at a decent gross margin,” said David Siino, an analyst with Gabelli & Co. Inc.
Among Dana’s problems has been cost cuts demanded by Ford Motor Co., General Motors Corp., and other automakers. Chapter 11 proceedings may help the Toledo company renegotiate pricing for those contracts, Siino said. Other suppliers, such as Visteon Corp. and Lear Corp., are teetering on the edge of bankruptcy, said Egan of Egan-Jones. Unlike Toyota Motor Corp. and Honda Motor Co., GM and Ford — which accounted for 36 percent of Dana’s 2004 revenues — have not helped suppliers out as costs for steel and energy spiraled, he said. “Dana is not going to be the last one,” Egan said. Dana’s biggest customer, Ford, will continue working with Dana, said Paul Wood, a spokesman for the automaker. “Ford is working closely with Dana to ensure there are no disruptions in the supply of parts to Ford facilities,” he said.
As for investors, no promises were made. Konoff, the retiree who was a human-resources administrator, said she bought company shares at $30 to $50 as part of the company’s now-defunct employee stock plan. She resisted selling because she wanted to remain a part owner of the company where she and her father, Toledoan Joseph Michalak, proudly spent their working lives. Winding up with virtually worthless shares never crossed her mind, she said. “It’s something you don’t expect to happen; so you keep it for retirement,” she said. Dana’s shareholders are unlikely to get any money for their stock unless unsecured creditors are repaid in full or agree to allow them some relief, said John Penn, president of the American Bankruptcy Institute. “As a general rule, shareholders rarely receive much if anything in a bankruptcy,” he said.
Dana has more than 100,000 creditors, but according to its bankruptcy filing, only one of them is secured: Citicorp USA Inc., which represents a syndication of lenders owed $377 million. As for unsecured creditors, Wilmington Trust Co. is by far the largest. It is owed more than $1.6 billion in bonds. A northwest Ohio company is among Dana’s largest unsecured creditors. Dana owes Metokote Corp. of Lima nearly $1.4 million. The filing prompted Standard & Poor’s Ratings Services to drop the Toledo auto supplier’s credit rating to its lowest junk level. Toledo Mayor Carty Finkbeiner did not return calls seeking comment yesterday but offered encouragement in a statement. “The Toledo community remains positive and very supportive of the Dana Corp. family,” the statement said. “I believe Mike Burns at Dana and the Dana family will stay focused and committed to the reorganization needed to turn this into a success story once again.”
Copyright 2006 The Blade, Toledo, Ohio. All Rights Reserved.
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