Dana Corp. Bankruptcy

Attorneys for Dana Corp. asked Robert Noah to analyze the impact of a Bankruptcy Court issued claims trading order. In proceedings in U.S. Bankruptcy Court in Manhattan, investor Carl Icahn’s effort to assert greater control over the process was based, in part, on how a court-issued trading order impacted the market for Dana Corp. debt.

This conflict was noted by The Wall Street Journal in a May 17, 2006 article:

… Mr. Icahn’s ambitions have been checked so far by a court order that American Real Estate contends will “chill trading” in debt securities. Before any creditor with more than 4.5% of Dana’s debt can buy or sell the debt, the creditor must give the company a 15-day notice, which will be followed by a 30-day objection period when trades can be made only with Dana’s permission.

Dana has said the rules, which are subject to a final court order in June, are necessary to protect the tax benefits of $917 million in net operating losses. Under federal tax provisions, the net operating losses can be carried forward to offset future income, resulting in as much as $321 million in savings, Dana said. Those savings, in turn, can be passed on to creditors when the company exits from bankruptcy.

Mr. Icahn’s company, however, contends the trading restrictions will have significant implications on the debt-securities market.

Leading up to a scheduled hearing in August, 2006, Cambridge Finance Partners analyzed tick-by-tick trading in Dana Corp. bonds both before and after the issued trading order. In addition, we performed the same analysis for several comparable firms that had been through bankruptcy under claims trading orders.

An agreement between Icahn’s group and Dana Corp. was reached shortly before the scheduled hearing.