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Related Issuers
Rating Action:

Moody's Raises ArvinMeritor's Corporate Family Rating to B2, outlook stable

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 is not an auditor and cannot in every instance independently verify or 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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