July 9, 2007 — Dana Corp., the Tier One automotive parts supplier reorganizing in Chapter 11 bankruptcy, has settled labor agreements with two unions representing most of its workers, and secured a commitment for new capital from a private-equity group. The two developments could speed Dana out of bankruptcy this year, it said in a statement.
Dana filed for federal creditor protection in March 2006, citing 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 serving automotive, commercial vehicle, and off-highway markets.
The new capital would total $500 million from Centerbridge Capital Partners L.P. and $250 million from other investors, essentially covering the cost of funding the VEBAs. Centerbridge is understood to have coordinated negotiations with the United Autoworkers and United Steelworkers of America unions, which represent about 8,000 Dana workers, more than half the total workforce.
The two unions have agreed to labor agreements that involve new, union-managed Voluntary Employees' Beneficiary Associations (VEBAs) that would manage retiree health and long-term disability benefits. Dana would fund the VEBAs with $700 million and $80 million worth of its new stock class, but would cease providing those benefits to the workers.
In addition, the new labor agreements would lead to a two-tier wage systems at Dana's U.S. plants; changes in disability benefits; and a freeze on credited service and benefit accruals under the workers' current pension plans.
Speaking of the labor agreements, Dana CEO Mike Burns called the labor agreements "fair and constructive," and added that they "will resolve significant ongoing cost issues when implemented and they provide important momentum toward our completion of a reorganization plan that will position us to operate as a competitive, sustainable business after emergence."
Dana estimates that the new labor agreements could save it more than $100 million, and eliminate about $1 billion of future liabilities
The bankruptcy court supervising Dana's reorganization must approve the union agreements and the new financing proposal, and the union members must ratify the labor agreement.