Dana Inc. Ratings Placed On CreditWatch Negative On COVID-19 Pandemic Uncertainty

  • We expect the spread of the coronavirus to sharply reduce the demand for autos and their production globally. Many manufacturers across Europe and North America are already halting their production. We had already been forecasting weaker demand for off-road and vehicles, as well as heavy duty trucks but now we believe these sectors will weaken further, particularly if a prolonged recession follows the pandemic shock.
  • We believe Dana Inc.'s operating results will be weaker than we previously expected, causing its credit metrics to deteriorate.
  • We are placing all of our ratings on the company on CreditWatch with negative implications, including our 'BB' issuer credit rating.
  • The CreditWatch placement indicates our belief that the disruption of global auto production and industrial markets could extend beyond a few weeks. It also reflects that the demand for new cars, trucks, and off-road equipment will likely decline because of the potential economic recessions stemming from the pandemic. We plan to resolve the CreditWatch when we can assess the magnitude of the coronavirus' effect on the company's financial condition.
NEW YORK (S&P Global Ratings) March 26, 2020—S&P Global Ratings today took the rating actions listed above.
Dana's revenue, profit, and cash flow will contract significantly due to the decline in global auto production related to the shutdown of most plants in Europe and the U.S., as well as greater declines in the heavy duty truck and off-road truck markets.  We now expect global light-vehicle sales to decline by almost 15% in 2020 and believe Dana will find it difficult to maintain its operating performance during the year. While the company may cut its costs to soften the blow, it will not likely be able to reduce its costs nearly fast enough to adjust to the shock from the pandemic. In the commercial truck and off highway markets, Dana was already seeing weaker demand and with the current pandemic, these sectors will weaken more than we previously expected.

CreditWatch

The CreditWatch placement reflects at least a one-in-two likelihood we will lower our issuer credit rating on Dana. We expect to resolve the CreditWatch when we learn more about the coronavirus' effect on Dana's financial position. We would likely lower our ratings on the company if we expect its debt to EBITDA to remain above 4x and its free operating cash flow to debt to remain below 10% with little prospect for an improvement over 2020-2021.

We expect to resolve the CreditWatch in the coming months and are monitoring the group's operating performance and liquidity situation, including its covenant compliance.
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