Standard & Poor's Ratings Services today said it has lowered its ratings on Toledo, Ohio-based Dana Holding Corp., (NYSE:DAN) including the corporate credit rating, which was lowered to 'B' from 'B+'. The ratings were also removed from CreditWatch, where they had been placed with negative implications on Nov. 13, 2008. The outlook is negative.

"The downgrade reflects our view that very weak market conditions in most of its business segments in 2009 will hinder the company's post-bankruptcy restructuring efforts," said Standard & Poor's credit analyst Nancy Messer. "We expect revenues to be reduced by weak auto sales and production in North America, weak auto sales in Europe, and the U.S. recession, which has stalled the recovery of commercial truck sales. Lacking an expanding revenue base, we believe the benefit from Dana's ongoing initiative to optimize its manufacturing footprint will fall short of our previous near-term expectations," she continued. For example, for the last three months of 2008, the seasonally adjusted annual rate of light-vehicle sales in the U.S. was below 11 million units, and we expect sales in 2009 to be 10 million units, 24% below 2008 actual sales.

In 2008, lower automaker production volumes, resulting from deteriorated vehicle demand in North America and Europe, and shifts in consumer preference reduced Dana's financial results. In addition, the company absorbed higher commodity costs than expected in 2008. Low production volumes and an unfavorable product mix more than offset the benefit of improved pricing negotiated on certain automaker contracts during bankruptcy. Third-quarter earnings were, therefore, very weak. We expect free cash flow to be negative in 2008 and 2009, after capital spending, and leverage to remain high at year-end 2009.

The rating reflects Dana's vulnerable business risk profile and highly leveraged financial risk profile as a significant participant in the global automotive market, manufacturing under-the-vehicle products such as axles, driveshafts, and other structural, sealing, and thermal products. Dana's customers are original equipment manufacturers (OEMs) of vehicles in the light-vehicle, heavy-duty commercial, and heavy off-road markets. Although the three Michigan-based OEMs account for about 27% of Dana's global sales, its axle and driveshaft businesses depend substantially on continued business from Ford Motor Co., which has reduced production volumes significantly for the first quarter of 2009. Dana has significant exposure to light trucks and SUVs, the sales of which have fallen dramatically, particularly in 2008, as consumer sentiment has shifted to passenger cars in response to volatile gasoline prices.

The outlook on Dana is negative. We could lower the ratings if Dana's liquidity begins to tighten because of greater cash use than expected or weak EBITDA caused by increased severity or duration of adverse market conditions. In our opinion, Dana needs to achieve adjusted EBITDA of $500 million annually for the rating, given its pension- and lease-adjusted total debt of $2.5 billion. We do not expect the company to pursue transforming acquisitions or large dividend payouts that could pressure credit ratios in the year ahead.