Dana Credit negotiating two-year forbearance agreement following $399 million notes acceleration

By Caroline Salls

Pittsburgh, Oct. 30 - Dana Credit Corp. is negotiating the terms of a two-year forbearance agreement in connection with the acceleration of its $399 million of notes, according to an 8-K filing with the Securities and Exchange Commission.

According to the filing, the notes became immediately due and payable when parent Dana Corp. filed for Chapter 11 bankruptcy.

The forbearance agreement is being negotiated with an informal committee of Dana Credit's noteholders.

Under the proposed forbearance agreement, the holders of Dana Credit's 6.93% senior notes due April 8, 2006; 7.18% senior notes due April 8, 2006; 7.91% senior notes due Aug. 16, 2006; 6.88% senior notes due Aug. 28, 2006; 8 3/8% senior notes due Aug. 15, 2007; and 6.59% senior notes due Dec. 1, 2007 will agree to forbear from exercising any of their rights or remedies for existing defaults for a period of 24 months, subject to approval of an intercompany settlement in Dana's Chapter 11 case.

If the U.S. Bankruptcy Court for the Southern District of New York does not approve the intercompany settlement, the forbearance and releases will be void and an extension of the bar date for Dana Credit and the forbearing noteholders to file claims against Dana will be extended for 30 days.

Dana Credit's obligations to each forbearing noteholder will be secured by all existing and future acquired assets of Dana Credit, consisting primarily of Dana Credit's equity interests in directly owned subsidiaries Dana Commercial Credit Corp. and Dana Lease Finance Corp.

In addition, Dana Credit will ensure that none of its indirect subsidiaries grant any security interests or otherwise encumber any of their assets.

Dana Credit will attempt to sell its portfolio assets, and forbearing noteholders will receive 10 days notice of any proposed sale of a portfolio asset.

A total of 51% of the forbearing noteholders must consent to any proposed portfolio asset sale for a purchase price that is less than the projected purchase price for that asset.

After the agreement implementation date, Dana Credit notes held by forbearing noteholders will accrue interest at their non-default contract rates.

Also, on the agreement implementation date, Dana Credit will pay up to $1.5 million in cash plus interest to forbearing noteholders in satisfaction of all outstanding obligations under the notes, other than the principal amount.

Beginning on the implementation date, Dana Credit will make quarterly cash payments of all cash in excess of $7.5 million to the forbearing noteholders.

Each quarterly payment will be applied first to reduce any interest outstanding and then, if additional amounts remain, will be applied to reduce the amount of principal outstanding.

Through the first five quarters following the implementation date, the total of all payments made to the forbearing noteholders will be at least $60 million, $90 million, $120 million, $145 million and $175 million, respectively.

Dana Credit's use of cash will be restricted to the payment of operating expenses and debt service, with no loans, dividends or similar payments to Dana, and no acquisitions or investments.

Intercompany settlement terms

Under the proposed intercompany settlement, Dana Credit will not be allowed a $325 million general unsecured claim against Dana; Dana Credit will consent to an extension of Dana's deadline to assume or reject unexpired leases between Dana, as lessee, and Dana Credit, as lessor; Dana will make cash payments to Dana Credit of all rental or other amounts that become due under a lease after the implementation date; Dana Credit will consent to the release to Dana of currently escrowed proceeds from the sale of its Richards Road and Owensboro properties; and Dana, Dana Credit and the forbearing noteholders will mutually release each other from any claims.

If Dana Credit intends to sell the intercompany claim or any interest in it before the effective date of a Chapter 11 plan, Dana Credit will provide Dana's official creditor and equity committees no less than 10 days written notice of the intent to sell.

If either committee files an objection to the proposed sale within the 10-day period, then no sale can take place, pending court approval.

In connection with the agreements, Dana Credit will pay $150,000 in outstanding fees and expenses as well as up to $50,000 in fees and expenses of the forbearing noteholders following the agreement implementation date.

Dana Credit's parent, Dana Corp., a Toledo, Ohio-based supplier of components, modules and systems to vehicle manufacturers and related aftermarkets, filed for bankruptcy on March 3, 2006. Its Chapter 11 case number is 06-10354.

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