Fitch Downgrades Dana Corp to 'BB+'; Rating Watch Negative

CHICAGO--Sept. 15, 2005--Fitch Ratings has downgraded the senior unsecured debt and senior unsecured bank facility of Dana Corp. (Dana) one notch to 'BB+' and placed the ratings on Rating Watch Negative. These actions follow the announcement that the company has reduced its full-year 2005 earnings outlook, in part, as a result of manufacturing inefficiencies at its Commercial Vehicle (CV) unit and continued raw material cost pressures. The company also stated that it is assessing its deferred tax asset for possible write-down (non-cash), opening discussions with its banks regarding its ability to comply with certain covenants of the five-year facility. In a separate issue, a restatement of second quarter 2005 financial statements to reflect an after-tax net income reduction of $10 million to $15 million is likely, and as a result, an internal review and a review by its independent auditors are underway. Other rating concerns include the quality of Dana's internal controls and uncertainty about potential waivers, amendments, or modifications to the bank agreements, especially bank requirements for security. Further rating downgrades are possible and would depend on the nature of any additional disclosures by Dana, the timely filing of quarterly SEC documents, improved visibility into the company's fundamental operating performance and cash flow, and the resolution of any accounting control issues that may have ultimately led to the need for a restatement.

Offsetting the concerns about reduced operational performance and the uncertainty regarding the five-year revolver is Dana's booked new light vehicle business, which when launched should further diversify its customer base and geographic sales mix, as well as Dana's liquidity at the end of the second quarter that included $651 million in balance sheet cash (with Dana Credit Corp. on an equity basis) and availability of $635 million in other lines of credit.

Fitch had anticipated that the commercial vehicle portion of Dana's business would have bolstered 2005 operating results due to the significant increase in 2005 Class 8 heavy truck volume. For the full-year 2004, the Heavy Vehicle Technologies and Systems Group (HVTSG), of which the CV unit is a part, had net profit (after allocation of corporate expense and net interest expense) of only $48 million while the Automotive Systems Group (ASG) had net income of $106 million. Fitch had originally expected that increased operating leverage from industry volume would contribute to better profitability at the CV unit and serve to offset the impact of lower anticipated volumes in the Light Vehicle unit where domestic customers have experienced slackening demand and declining market share. Given the $106 million reduction in the average 2005 net income guidance, it now appears that CV manufacturing inefficiencies have off-set Dana's benefits from Class 8 industry volume.

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