A Reorganized Dana Corporation

Essay

A Reorganized Dana Corporation
Emerges from Bankruptcy Court
Dana Corporation, an automotive parts manufacturer, announced on February 1, 2008, that it had emerged from bankruptcy court with an exit financing facility of $2 billion. The firm had entered Chapter 11 reorganization on March 3, 2006. During the ensuing 21 months, the firm and its constituents identified, agreed on, and won court approval for approximately $440 million to $475 million in annual cost savings and the elimination of unprofitable products. These annual savings resulted from achieving better plant utilization due to changes in union work rules, wage and benefit reductions, the reduction of ongoing obligations for retiree health and welfare costs, and streamlining administrative expenses.
The plan of reorganization accepted by the court, creditors, and investors included a $750 million equity investment provided by Centerbridge Capital Partners to fund a portion of the firm's health-care and pension obligations. Under the plan, shareholders received no payout. Bondholders of some $1.62 billion in various maturities and holders of $1.63 billion in unsecured claims recovered about 60-90 percent of their claims. Centerbridge would acquire $250 million of convertible preferred stock in the reorganized Dana operation, and creditors, who had agreed to support the reorganization plan, could acquire up to $500 million of the convertible preferred shares. The preferred shares were issued as an inducement to get creditors to support the plan of reorganization. Under the reorganization plan, Dana sold some businesses, cut plants in the United States and Canada, reduced its hourly and salaried workforce, and sought price increases on parts from customers.

-Dose the process outlined in this business case seem equitable for all parties to the bankruptcy proceedings? Why? Why not? Be specific.