S&P upgrades Dana Holding credit, debt ratings

AP News
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Posted: Dec 03, 2009 6:17 PM

Standard & Poor's Ratings Services on Thursday raised its corporate credit and senior secured debt ratings for auto supplier Dana Holding Corp., citing improved earnings and cash flow.

S&P said Toledo, Ohio-based Dana's recent results were better than expected, and noted the company reduced its debt by $254 million in the first nine months of the year.

Dana's corporate credit rating was raised to B from B-, which remains below investment grade, or "junk" status. Dana emerged from bankruptcy protection in early 2008.

At the same time S&P raised its ratings on Dana's senior secured debt. The outlook is stable.

"The upgrade reflects our assumption that Dana's recent earnings and cash flow improvement will be sustainable into 2010, despite weak auto production volumes that we expect for both light vehicles and commercial vehicles," said Standard & Poor's credit analyst Nancy Messer.

Dana's earnings and cash flow for the third quarter were better than expected, reflecting aggressive restructuring actions taken after emerging from Chapter 11 despite weak auto sales.

In addition, Dana reduced debt by $254 million in the first nine months of 2009 through a Dutch auction, market purchases of debt, and raising funds through a common equity offering. That reduces the risk that Dana won't be able to make payments on remaining debt through next year.

Even though S&P expects the weak auto and truck market to continue, cost cutting measures should allow for improved profits, she said.

The company does face risks associated with volatile costs for commodities, primarily steel and aluminum. "We believe Dana is working to address this exposure through customer purchase programs, price increases, and negotiated contracts that allow for a lag in recovering the cost of materials."

S&P could lower the ratings if Dana's liquidity begins to tighten because the company uses more cash than expected, or if earnings is weak because of the depressed auto market. It could raise ratings if earnings come in better than expected.

Dana shares closed Thursday up 22 cents, or 2.7 percent, at $8.26, after hitting a 52-week high of $8.47 during the session.