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18 Feb 2011
Approximately $1.0 billion of rated debt obligations affected
New York, February 18, 2011 -- Moody's Investors Service raised the Corporate Family and Probability
of Default ratings of ArvinMeritor, Inc. (ArvinMeritor) to
B2 from B3. In a related action, Moody's raised the rating
on the senior secured revolving credit facility to Ba2 from Ba3,
and raised the ratings on the senior unsecured notes to B3 from Caa1.
ArvinMeritor's Speculative Grade Liquidity Rating was affirmed at SGL-3.
The rating outlook is stable.
Ratings raised:
Corporate Family Rating, to B2 from B3;
Probability of Default Rating, to B2 from B3;
Senior secured bank debt, to Ba2 (LGD1, 4%) from Ba3
(LGD1, 4%);
Senior unsecured notes, to B3 (LGD4, 58%) from Caa1
(LGD4, 58%);
Shelf unsecured notes, to B3 (LGD4, 58%) from (P)Caa1
(LGD4, 58%)
Rating affirmed:
Speculative Grade Liquidity Rating, at SGL-3
RATINGS RATIONALE
The upgrade of ArvinMeritor's Corporate Family Rating to B2 reflects the
company's improving credit metrics over the recent quarters combined
with our expectation that recovering economic trends will support increasing
commercial vehicle demand over the near-term. In January
2011 the company sold its Body Systems group which will permit management
to focus on further strengthening performance of the commercial vehicle
and industrial segments. With about 50% of total revenues
derived from North America, ArvinMeritor is positioned to benefit
from higher commercial vehicle orders, supported by increasing freight
volumes, and an aging vehicle fleet. In addition, the
company's exposure to other regional growth markets, such
as South America (about 15% of revenues) and Asia (about 14%),
is expected to help lift profitability over the near-term.
The stable rating outlook incorporates the expectation that ArvinMeritor's
profitability and credit profile should continue to demonstrate gradual
improvement over the near-term with improving commercial vehicle
demand. ArvinMeritor will need to maximize earnings and cash flow
generation during the coming months in order to address debt maturities
in 2012 and increasing cash needs to finance growth. For the LTM
period ending December 31, 2010, ArvinMeritor's EBIT/Interest
coverage (including Moody's standard adjustments) approximated 1.2x
and free cash flow/debt approximated 1%.
ArvinMeritor's liquidity profile over the near-term is expected
to remain adequate, supported by cash balances and availability
under the company's senior secured revolving credit facility.
As of December 31, 2010, cash balances were $276 million.
The company's $539 million senior secured revolving credit
facility was unused with approximately $13 million of letters of
credit outstanding. Total commitments under this facility will
reduce to $396 million in June 2011 and mature in January 2014.
The principal financial covenant is a senior secured leverage test which
is expected to have sufficient cushion to permit access to the full revolver
over the near-term. The facility also incorporates an availability
limitation based on available collateral securing the facility which is
also expected to support usage of the committed amounts over the near-term.
Negative covenants under the revolver limit both annual and cumulative
amounts of asset sales. Liquidity is also supported by a $125
million U.S. securitization program maturing in October
2013 which was unused at December 31, 2010. The company's
cash balances and committed availability may be required to support large
cash needs over the near-term, including working capital
and capital reinvestment to support increased commercial vehicle demand
in 2011. In addition, approximately $84 million of
senior notes matures in March 2012. Moody's also notes that
ArvinMeritor had approximately $242million outstanding under short-term
off-balance sheet factoring and securitization programs as of December
31, 2010.
Future events that have the potential to improve ArvinMeritor's ratings
include improving production levels in the company's global commercial
vehicle end-markets, or further enhancement of operating
margins, resulting in consistent free cash flow generation and EBIT/interest
improving to above 2.0x.
Future events that have the potential to drive ArvinMeritor's outlook
or ratings lower include deterioration in global commercial vehicle production
without offsetting restructuring actions, or deteriorating liquidity.
Lower ratings could arise from the above considerations, or if EBIT/Interest
coverage is sustained at or below 1.5x times.
The principal methodologies used in this rating were Global Automotive
Supplier Industry published in January 2009, and Loss Given Default
for Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
ArvinMeritor, Inc., headquartered in Troy, MI,
is a global supplier of a broad range of integrated systems, modules
and components serving light vehicles, commercial trucks,
trailers, and specialty original equipment manufacturers,
as well as certain aftermarkets. Revenues for fiscal year-end
September 2010 were $3.6 billion.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
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validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Timothy L. Harrod
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Raises ArvinMeritor's Corporate Family Rating to B2, outlook stable
No Related Data.
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