NEW YORK Dana Corp. won court approval yesterday for new contracts with its labor unions and a plan to shed a $1 billion obligation to provide health benefits to union retirees.
Rejecting objections from the Toledo firm s largest shareholder, Judge Burton Lifland approved the deal after a day-long hearing in U.S. Bankruptcy Court in New York City.
The deal is a sound exercise of [Dana s] business judgment, and in the best interest of all parties, the judge said.
Describing the decision as a watershed event in its 16-month-old Chapter 11 case, executives of Toledo s largest company said in court filings that the deal will result in $100 million in annual savings and help stem hemorrhaging of cash that threatened its survival.
Chief Executive Michael Burns testified for the company.
The deal will help clear the way for the auto-parts supplier to file a required bankruptcy-exit plan by early September and to emerge from Chapter 11 this year or early next year.
It was not known what other financing and arrangements Dana needs to develop before it can submit a Chapter 11 exit plan. A company spokesman couldn t be reached for comment last night.
But Jim Robinson, an official with the United Steelworkers union, praised the judge s decision.
When bad things happen to people, victory is not the right word, he said. But if you look at what we re up against, I think it s a pretty good outcome.
The new contracts cover about 4,000 members of the United Auto Workers and Steelworkers at 11 Dana plants in Lima as well as in Michigan, Indiana, Kentucky, Pennsylvania, Texas, and Missouri, according to the unions.
In the Toledo area, the deal affects several hundred retirees from a closed Dana plant. At one point, Dana s unionized retirees nationwide estimated at 10,000 by the unions faced a total cut-off of health benefits.
Instead, under the deal, Dana will contribute $750 million to union-run trust funds that will take over the obligation. Benefit plans will change, but it is unclear how and to what extent.
The company initially demanded steep wage cuts from union workers. But new contracts, which expire June 1, 2011, preserve wages of current workers, set lower hourly rates for new hires at $14, and freeze pensions.
Private-equity firm Centerbridge Capital Partners LP, which the unions have said they recruited, has agreed to finance the deal by contributing and lining up investors for up to $750 million.
But yesterday, some creditors expressed hope that a rival financing packaging will be put forth that provides a better return to creditors.
The hedge fund Appaloosa Management LP, which is Dana s largest shareholder, opposed the financing package, claiming it would provide a huge windfall to the New York private equity firm at the expense of creditors. Appaloosa, led by financier David Tepper, has said it will submit a bid.
Dana lawyers rejected the firm s criticism of the deal this week, calling it the rumblings of a frustrated bidder.
A committee of Dana s unsecured creditors had also opposed the agreement but dropped its opposition yesterday after minor modifications by the company.
At the hearing, Dana s CEO said approval of the deal was essential for the company s survival.
Dana, which filed for bankruptcy protection March, 2006, said that it had to shed its long-term costs, such as health care services. It wanted to save $180 million a year in wages and benefits and, through other moves, save up to $540 million a year. It said it has lost $2 billion in the past five years.
The agreement to put union employee and retiree health care into separately run trust funds was done this year to the salaried retirees.
Gary T. Pakulski
The Dow Jones News service contributed to this report.