Dana board rejects Appaloosa proposal; Centerbridge to backstop $500 million series B preferred offering

By Caroline Salls

Pittsburgh, Oct. 12 - Dana Corp.'s board of directors has rejected Appaloosa Management LP's investment proposal and Centerbridge Partners LP has subsequently amended its investment proposal to allow it to backstop a $500 million series B convertible preferred shares offering, according to an 8-K filed with the Securities and Exchange Commission.

Dana said its board had discontinued all discussions and negotiations with Appaloosa.

According to the filing, Centerbridge's commitment to purchase $250 million of series A convertible preferred shares of reorganized Dana is unchanged.

However, under the amendment, Centerbridge has agreed to purchase up to the full $500 million of series B convertible preferred shares if the shares are not purchased by supporting creditors.

As a result, Centerbridge's commitment fee will be increased to $12.5 million, or 2.5% of $500 million, from $2.5 million, or 1% of $250 million.

In addition, the amendment allows Centerbridge to enter into arrangements with some Dana creditors under which the creditors will participate in the backstop for up to $250 million of the series B convertible preferred shares.

Centerbridge said it also expects to offer participation in the backstop agreement to holders of some or all of the $650 million in bonds issued by Dana, and the company and Centerbridge plan to seek bondholder approval of the related plan support agreement.

Centerbridge has also agreed to a plan of reorganization provision that pays cash to general unsecured claimants who are not eligible to purchase series B convertible preferred shares solely because the holder's total liquidated, noncontingent unsecured claims are less than $25 million or the holder is not a qualified institutional buyer under Rule 144A of the Securities Act of 1933.

The amount of the cash payment will be calculated on a sliding scale based on the market value of common stock of reorganized Dana after emergence, subject to a $40 million cap and an individual claim cap of $0.085 per $1.00 of claims.

The 8-K said the cash payment will be funded either by increasing the number of series B convertible preferred shares available for purchase by Centerbridge or the qualified investors by 400,000 shares at a price of $100 per share, or from cash on hand if Centerbridge does not consent to the share increase.

Other amendments

Also under the amendments:

• Dana has agreed not to solicit or entertain any further proposals for any investment transaction or plan of reorganization;

• The amendment eliminates Dana's right to terminate the investment agreement to accept any alternative investment or transaction proposal.

If Dana violates this non-solicitation covenant, Centerbridge will have the right to terminate the amendment;

• The maximum amount of Dana's obligation to reimburse Centerbridge for its out-of-pocket expenses will be increased to $6.5 million from $4 million; and

• The terms of the series A and series B convertible preferred shares will be amended to give limited preemptive rights to purchase additional shares to the holders of both series A and series B shares, rather than just to holders of the series A shares.

Dana, a Toledo, Ohio-based supplier of components, modules and systems to vehicle manufacturers and related aftermarkets, filed for bankruptcy on March 3, 2006 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 06-10354.

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