Business Context and Reporting Period
This Form 8-K Current Report was filed by Dana Corporation on February 6, 2003. The filing details a realignment of bank credit facilities for Dana Corporation and its subsidiary, Dana Credit Corporation (DCC), reflecting the company's strong cash position and reduced need for backup credit.
Key Financial Metrics and Credit Facilities
- Dana Corporation Revolving Facility: Cancelled a $100 million 364-day facility (no borrowings ever occurred).
- Dana Corporation Long-Term Facility: Capacity reduced from $500 million to $400 million (matures November 15, 2005). No borrowings were outstanding as of December 31, 2002, or in 2003.
- DCC Long-Term Facility: Capacity reduced from $250 million to $200 million (matures June 28, 2004). Outstanding borrowings were $95 million as of February 10, 2003, down from $131 million at December 31, 2002.
- Accounts Receivable Program: Dana amended its $400 million program, lowering the credit rating thresholds at which lenders may terminate the program.
Material Changes Versus Prior Period
The primary material change is the reduction in aggregate borrowing capacity across all major facilities. Dana's long-term facility capacity decreased by $100 million, and DCC's facility capacity decreased by $50 million. Additionally, DCC's outstanding debt decreased by $36 million between December 31, 2002, and February 10, 2003, driven by proceeds from asset sales announced in October 2001.
Guidance, Covenants, and Risks
The amendments introduced stricter financial covenants and collateral requirements for Dana Corporation:
- Collateral Requirements: Required if borrowings exceed $50 million, remain outstanding for more than five business days, or occur within five business days of repaying previous borrowings. These requirements terminate if credit ratings reach "BBB-" (S&P) or "Baa3" (Moody's).
- Financial Ratios (Dana):
- Net senior debt to tangible net worth: Max 1.25:1 (Q1-Q3 2003), 1.10:1 (Q4 2003+).
- EBITDA minus capex to interest expense: Min 1.80:1 (Q1-Q3 2003), increasing to 2.50:1 by Q2 2004.
- Net senior debt to EBITDA: Max 3.40:1 (Q1-Q3 2003), decreasing to 2.50:1 by Q1 2004.
- DCC Restrictions: Borrowing capacity is subject to further reductions equal to two-thirds of net cash proceeds from future asset sales. Dividends and distributions to Dana are restricted.
- Termination Triggers: The accounts receivable program termination thresholds were lowered to "B" (S&P) and "B2" (Moody's).
Investor Verification Checklist
- Verify current credit ratings from S&P and Moody's to assess if collateral requirements or termination triggers are active.
- Confirm the status of DCC asset sales and whether further reductions in borrowing capacity have occurred.
- Review the most recent quarterly financial statements to ensure compliance with the new, stricter debt-to-equity and interest coverage ratios.
- Check for any new borrowings under the amended facilities that would trigger collateral posting.