Dana Corp. Affirmed, Outlook Revised; Echlin Affirmed, Off S&PWatch
5 May 1998
Dana Corp. Affirmed, Outlook Revised; Echlin Affirmed, Off S&PWatchNEW YORK, May 5 -- Standard & Poor's today affirmed its single-'A'-minus senior debt and corporate credit ratings and its 'A-2' commercial paper rating on Dana Corp. and Dana Credit Corp. The outlook has been revised to negative from stable. The rating actions follow the company's announcement that it plans to acquire Echlin Inc. for stock in a deal valued at $3.4 billion, plus assumed debt. Echlin's single-'A'-minus corporate credit rating and 'A-2' commercial paper rating are affirmed and removed from CreditWatch, where they were placed on Feb. 18, 1998, when the company became the target of an unsolicited takeover bid from SPX Corp. The rating actions assume that Dana's acquisition of Echlin will be completed as outlined above. The outlook on Echlin is negative. The combined company will generate about $13 billion in annual revenues, making it one of the largest companies in the auto supply industry. The addition of the Echlin businesses will bolster Dana's overall business position by expanding its after market presence and global diversification. However, it may delay the improvement in capital structure that had been factored into Dana's current ratings. Dana's debt leverage is somewhat aggressive for existing ratings and had been expected to decline to the 40% area over the next year or two. Pro forma for the pending transaction, the combined company's debt to capital (including capitalized operating leases and the accounts receivable sales program at Echlin) is estimated to be close to 50%. The acquisition of Echlin also represents a more aggressive stance regarding acquisitions than had previously been factored into Dana's ratings. OUTLOOK: NEGATIVE Ratings assume a reduction in debt leverage over the next year or two. Failure to achieve an improved capital structure could lead to reviews for possible downgrades, Standard & Poor's said. -- CreditWire SOURCE Standard & Poor's CreditWire