Dana Corp.'s bonds traded up several points on estimates they will see a good recovery, perhaps as high as par. Initial recovery estimates for the auto parts company, which filed for bankruptcy March 3, were in the 63-65 context. Dana's 10.125% '10 bonds were up eight-and-a-half points to 76 3/4, while its 6.5% '08 bond climbed to 75 1/2 from 69 1/4. Investors collecting bonds to deliver for single-name credit default swaps contracts also caused an increase in trading levels, according to dealers. All of Dana Corp.'s bonds will be included in the International Swaps and Derivatives Association's protocol to cash settle index CDS trades on the name (see story, page 7).
Shelly Lombard, high-yield analyst at Gimme Credit, said a par recovery rate on the bonds is possible. Dana owns a number of joint ventures that could have $900 million book value and it is also liquidating Dana Credit Corp., a lease financing services provider, which is worth $200 million. That combination covers a large portion of Dana's unsecured debt, which amounts to $2.5 billion. Lombard said the rest of the bonds can be easily covered by Dana's EBITDA. A Dana spokesman did not return calls for comment.
Dana also has several profitable operations that will help cover its liabilities. The company's European, South American, Asia-Pacific, Canadian and Mexican subsidiaries are not included in its bankruptcy filing and a trader said the assets of the European operations alone can easily cover Dana's liabilities. Lombard said a lot of the auto supplier's profitability over the next two years depends on steel prices and the volumes of business that it can maintain with Ford Motor and General Motors.
Dana's $400 million revolver traded up three points to par on speculation that it will be taken out by the company's $1.45 billion debtor-in-possession loan. But the DIP could lower the recovery on the bonds, depending on how much Dana draws and how much EBITDA the company can generate, Lombard said. Dana has already drawn upon $800 million of the facility on an interim basis pending a final order approving the full facility.
Citigroup, Bank of America and JPMorgan are leading the DIP, which investors have heard would be broken into a $700 million term loan and a $750 million revolver. The term loan is expected to be priced at LIBOR plus 3 1/4% and the revolver priced at LIBOR plus 2 1/4%. Dana's $1.45 billion financing is one of the larger DIPs on record. Three companies, Delphi, Kmart and Calpine, have all had DIP financings of $2 billion.
Moody's Investors Service anticipates that the bankruptcy will have an impact on the ratings of collateralized debt obligations that have Dana exposure. It anticipates that the rating impact for collateralized bond obligations will be greater than for those of collateralized loan obligations because the expected recovery rates for loans are higher than those for the bonds.
The ratings agency has identified 120 Moody's-rated US CDO transactions with exposures to both Dana Corp. and Dana Credit Corp. There are 96 cash CDO transactions and 24 synthetic CDO transactions with exposures to both. Among the affected CDOs, the proportion of the portfolios comprised of Dana Corp. obligations range from less than .02% to 4.2% for cash CDOs and .2% to 2.5% for synthetic CDOs. Portfolios comprised of Dana Credit Corp. range from less than .2% to 4.3%.
