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07 Jun 2006
MOODY'S AFFIRMS ARVINMERITOR CORPORATE FAMILY RATING AT Ba2; ASSIGNS Ba1 RATING TO NEW BANK FACILITY; DOWNGRADES RATINGS ON CERTAIN UNSECURED NOTES TO Ba3; OUTLOOK NEGATIVE
Approximately $1.8 billion of rated obligations
New York, June 07, 2006 -- Moody's Investors Service has affirmed ArvinMeritor, Inc.'s
("ArvinMeritor") Corporate Family rating at Ba2 and assigned Ba1 ratings
to the company's $1.05 billion of new first lien bank debt.
Moody's lowered to Ba3 the ratings on the company's existing senior unsecured
notes issued under the company's "1998 Indenture". The actions
follow ArvinMeritor plans to reset the terms of its bank revolving credit
facility and arranging a new $200 million bank term loan,
both of which will benefit from first priority liens against certain of
the company's assets. The rating outlook is Negative. Ratings
on the company's remaining notes issued under the "1990 Indenture"
(approximately $11 million) are under review with direction uncertain
as that indenture contains stronger protective features than the 1998
indenture, and their treatment under the refinancing remains to
be clarified. Moody's also affirmed ArvinMeritor's Speculative
Grade Liquidity rating at SGL-2, representing good liquidity
over the next 12 months.
Corporate Family, Ba2
Speculative Grade Liquidity, SGL-2
$850 million first lien revolving credit, Ba1
$200 million first lien term loan, Ba1
6.75% notes maturing in 2008, to Ba3 from Ba2
6.8% notes maturing in 2009, to Ba3 from Ba2
8.75% notes maturing in 2012, to Ba3 from Ba2
8.125% notes maturing in 2015, to Ba3 from Ba2
Shelf filing for unsecured notes, to (P)Ba3 from (P)Ba2
Backed preferred stock, to B1 from Ba3
Ratings under review with direction uncertain:
6.625% notes maturing in 2007 (approximately $5 million
7.125% notes maturing in 2009 (approximately $6 million
ArvinMeritor will grant bank lenders under the new facilities a first
lien against certain domestic assets, including accounts receivable,
inventory, certain property, plant & equipment as well
as shareholdings in foreign subsidiaries (generally limited to 65%),
the shares of its special purpose vehicle used to facilitate accounts
receivable securitization, and inter-company notes due from
foreign subsidiaries. The pledged collateral will be designed and
documented to not trigger the negative pledge provisions of the company's
1998 and 2006 indentures. Those indentures would mandate equal
and ratable security be given to note holders if Secured Debt exceedes
a prescribed limit. Subject to the terms of those indentures,
a lien basket of 15% of defined Consolidated Net Tangible Assets
was established but excluded certain assets and types of debt from the
applicable definitions. A "savings clause" will be included in
the bank security agreements which will have the effect of turning over
to the trustee for the respective issues any amounts realized by the banks
in excess of the applicable lien basket. Debt issued under the
company's 1990 indenture involved a smaller lien basket and different
terms which could be triggered by the proposed refinancing. Approximately
$11 million of notes issued under that indenture remain (the 6.25%
and 7.125% notes) following the company's debt tender in
March. The company has not yet specified how these notes will be
treated with respect to the terms of the indenture.
The company will use $190 mm of the proceeds from the new term
loan to reduce usage under its accounts receivable securitization program,
which was roughly $206 million at the end of March 2006.
The new revolving credit for $850 million will replace an existing
$900 million facility. The transaction will not materially
increase the company's indebtedness, but will further extend its
debt maturity profile. The refinancing will not affect prospects
for the company's operations or cash flows. Changes to the company's
financial covenants will provide incremental headroom for financial covenant
compliance. Covenants are not expected to constrain effective availability
under the revolving credit facility over the next 12 months. In
turn, this enhances the company's financial flexibility.
Consequently, the Corporate Family rating of Ba2 has been affirmed.
The negative outlook (related to ratings not incorporated in the review)
represents continuing concerns enumerated in Moody's rating action of
April 4, 2006. Principally these reflect uncertainty associated
with the impact to the company's performance in 2007 when new emission
regulations for commercial vehicles in North America come into effect.
These could adversely affect results in ArvinMeritor's Commercial Vehicle
System's segment ("CVS"), which has accounted for the vast majority
of recent operating earnings while its Light Vehicle System's ("LVS")
segment has struggled with poor returns. However, CVS's trailer,
aftermarket, emission and international operations may mitigate
some of the anticipated decline in new commercial vehicle production in
North America. In addition, restructuring actions in both
segments are expected to generate savings. While visibility on
the extent of any potential decline in the CVS business remains limited,
margins within LVS must show improvement to support the current ratings.
In the absence of a material improvement in those margins, LVS results
may not fully offset any potential decline in CVS. The negative
outlook also considers the potential for labor disruptions should negotiations
between Delphi Corporation, GM and the UAW and between Tower Automotive,
Ford and the UAW fail to resolve current issues related to labor costs.
The remaining notes issued under the 1990 indenture could be up-graded
should they receive equal and ratable treatment with the secured bank
debt or receive other treatment that preserves or enhances their position.
Conversely, should they for any reason not be granted equal and
ratable treatment their ratings could be lowered.
The Ba1 rating on the new bank facilities reflects higher recovery expectations
based on their priority of claims. However, the new bank
facilities are not structured on a borrowing base nor supported by appraisals
on the pledged assets. The negative pledge clause in the 1998 and
2006 indenture also somewhat limits the extent of liens which can be granted
against foreign subsidiary shareholdings and inter-company notes.
Moody's concluded the senior secured ratings could be up-notched
one level from Corporate Family. Higher recovery expectations on
the secured debt, however, adversely affects recovery expectations
for unsecured obligations. Ratings on unsecured instruments (other
than those issued under the 1990 indenture) have been lowered one notch
from Corporate Family. Rating on Arvin Capital's backed preferred
shares have also been lowered one notch.
The Speculative Grade Liquidity rating of SGL-2 has been affirmed
and represents good liquidity over the next 12 months. While the
amount of the company's effective availability to its external commitments
has increased as a result of the financing, prospects for free cash
flow and other internal resources have not changed sufficiently to support
a higher overall rating at this time. However, the rating
is better positioned within the SGL-2 category. The granting
of security interests, related terms, and continuing impact
of the negative pledge clause under the indentures, somewhat diminishes
the capacity to develop incremental sources of alternative funding.
ArvinMeritor, Inc., headquartered in Troy, MI,
is a global supplier of a broad range of integrated systems, modules
and components serving light vehicle, commercial truck, trailer
and specialty original equipment manufacturers and certain aftermarkets.
Revenues in fiscal 2005 were approximately $8.9 billion.
Michael J. Mulvaney
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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