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Dana Files Reorganization Plan, Eyes End of Bankruptcy

Sept. 4, 2007
Axle/driveshaft producer aims to raise $750 million in equity

September 4, 2007 — Dana Corp. has filed its bankruptcy reorganization plan with a federal court, outlining how it plans to exit Chapter 11 after 17 months of creditor protection. The plan details how creditors and stakeholders will be credited in the new organization, and indicates it will have access to about $750 million by way of new preferred shareholders, including the private-equity firm Centerbridge Capital Partners LP. Dana says it intends to be free of the court administration later this year.

The company maintains that the new Dana Corp. will benefit from lower labor costs, new pricing agreements with key material suppliers, a leaner organization, and lower employee benefit costs.

Based in Toledo, OH, Dana is a Tier One automotive parts supplier that declared bankruptcy in March 2006, claiming assets of about $7.9 billion and liabilities of approximately $4.7 billion. The group produces axles, driveshafts, and structural, sealing, and thermal management products for vehicle and engine manufacturers in the automotive, commercial vehicle, and off-highway markets.

Last November, Dana listed five goals it said would be addressed by its reorganization, and identified the areas where it hoped to achieve $405 million to $540 million in cost savings and margin improvements.

Now, Dana indicates those issues have been addressed, including: agreements with customers to resolve under-performing programs and with suppliers to obtain pricing adjustments; a downsized manufacturing presence; lower labor costs; reduced retire health and welfare costs through Voluntary Employee Benefit Association (VEBA) trusts; and a revision of all administrative costs to identify and implement savings.

In July, Dana reached labor agreements with the United Autoworkers and United Steelworkers unions, representing most of its workers. Those agreements anticipate the VEBA trusts. Dana also announced a commitment for new capital from Centerbridge. While the unions approve the reorganization plan, Dana's current largest shareholder, Appaloosa Management, objects to it. The company has asked Appaloosa to submit its own reorganization plan.

Chairman and CEO Mike Burns stated, "When we entered Chapter 11 in March 2006, we committed to fixing our business comprehensively -- financially and operationally -- and to implementing fundamental change, not simply incremental improvement. As detailed in our disclosure statement, Dana has made substantial progress in addressing our challenges and building a sustainable business that is well positioned to compete in a challenging global environment. We are on track to emerge as a stronger, financially stable company that is equipped to make significant investments in our programs and to continue providing innovative products of the highest quality to our customers worldwide."

Dana reports that since the start of the bankruptcy it has identified, agreed upon, and won court approval for actions that it expects will save the group approximately $440 million to $475 million annually. It also began realigning its businesses, including sell offs/divestitures of its trailer axle business, Engine Products group, a German automotive-components supplier, Getrag GmbH, and its Fluid Products Hose and Tubing business. Another sale is pending, the Fluid Products Coupled Products business.

Before the reorganization can be implemented, the bankruptcy court will hold a hearing to review creditors' and/or equity holders' appeals of the plan. Once a reorganization plan has been approved by the court, claimants and equity holders will be invited to vote to approve or reject it. Once the plan has been approved and confirmed, Dana may emerge from court administration (Chapter 11.)