Bankruptcy rumors bedeviled Dana Corp. last week after the troubled maker of drivelines and frames failed to make a decision on its next dividend payment.
That inaction prompted several analysts and publications to speculate about bankruptcy at Dana on Friday, Feb. 24. The Wall Street Journal reported that Dana hired Miller, Buckfire & Co., a New York financial restructuring firm. Standard & Poor's and Moody's credit services both downgraded Dana's debt ratings well into junk status.
Dana's stock plummeted to $1.51 on the New York Stock Exchange on Friday - the lowest price for the stock in at least three decades. In two days the stock lost 61 percent of its value. Volume was unusually heavy with more than 90 million shares trading hands Thursday and Friday. That's nearly 16 times the stock's average two-day volume.
The timing of the sell-off couldn't be worse for the 100-year-old Toledo, Ohio, supplier. The company is renegotiating its lines of credit with its bankers.
As of Sept. 30, the company still had $892 million in cash, but that doesn't mean much to bond holders and shareholders who have lost significant investments.
At the heart of rumors about Dana, says credit analyst Glenn Reynolds, is whether the banks are backpedaling on the automotive sector. That poses new risks for suppliers that aren't in Chapter 11 bankruptcy protection, he says.
"It is a reminder - as if we all need one - of the hair-trigger sensitivity in the market around bad news in the auto sector," Reynolds wrote in a report.
Dana faces a litany of issues: a federal accounting investigation, higher raw material costs, lower customer production and a wholesale restructuring. The company posted a $1.27 billion loss in its 2005 third quarter - the loss was $63 million after one-time costs.
On Tuesday, Feb. 21, the company said its board will wait until its fourth-quarter 2005 results are complete before deciding whether to issue its 1-cent-a-share dividend. The company cut its dividend from 12 cents last fall.
Dana officials could not be reached for comment Friday.
Despite its problems, Dana has scored well on various vehicle platforms, particularly for Ford Motor Co. Last year it was named one of Ford's 12 preferred suppliers in the automaker's "commonality program."
"We will work with Dana to ensure that there are no supply disruptions," said Ford spokesman Ron Iori.
At least one other major customer is worried. "If they don't get financial support from their banks, they will be in big trouble," says a senior automotive executive who asked to remain anonymous because of the sensitivity of the situation.
You may e-mail Philip Nussel at [email protected]