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Rating Action:

Moody's affirms Tenneco's Ba3 CFR, rating outlook changed to positive

17 May 2013

Approximately $1.8 billion of debt obligations affected

New York, May 17, 2013 -- Moody's Investors Service raised the rating outlook of Tenneco Inc. ("Tenneco") to positive. In a related action, Moody's affirmed Tenneco's Corporate Family and Probability of Default Ratings at Ba3 and Ba3-PD, respectively, and affirmed the ratings on the company's senior secured bank debt at Baa3, and senior unsecured debt at B1. The Speculative Grade Liquidity Rating also was affirmed at SGL-2.

Ratings affirmed:

Corporate Family rating, at Ba3;

Probability of Default rating, at Ba3-PD;

Speculative Grade Liquidity Rating, at SGL- 2;

Senior secured revolving credit facility due 2017, at Baa3 (LGD2, 12%);

Senior secured term loan A facility due 2017, at Baa3 (LGD2, 12%);

6 7/8% senior unsecured notes due 2020, at B1 (LGD4, 67%);

7.75% senior unsecured notes due 2018, to B1 (LGD4, 67%)

RATINGS RATIONALE

The change in Tenneco's rating outlook to positive reflects the company's improved debt service profile resulting from the combination of debt refinancing completed in 2012 and the ability to sustain profitability despite growth pressures in the company's commercial vehicle and European markets. As a result, Moody's expects the company to sustain EBIT/Interest above 4.0x on an LTM basis over the intermediate term. For the LTM period ending March 31, 2013, Tenneco's EBIT/Interest coverage (including Moody's standard adjustments) was 3.9x. Over the intermediate-term Tenneco's growth prospects in its clean air division along with gradual profit margin improvements in this segment should support further debt reduction under the company's revolving credit facility. Tenneco's ability to demonstrate sustainably lower debt levels while growing its clean air division, assuming continued prudence related to shareholder return initiatives, could support a positive rating action.

Tenneco's Ba3 Corporate Family Rating continues to incorporate the company's modest leverage and strong competitive position within the auto parts supplier sector. As of March 31, 2013, Tenneco's Debt/EBITDA was 3.1x. Tenneco's revenue growth over the intermediate term is expected to be driven by new business growth in the company's clean air division (about 67% of 2012 revenues) as stricter emissions control regulations come into effect. Much of the clean air division's growth is expected to be driven by the global commercial vehicle and specialty markets which are expected to expand, and the company's penetration of new commercial vehicle customers. However, growth in China is expected to expand at slower rates than in the past. This growth should also improve margins. Yet, Tenneco's revenue growth over the near-term will be pressured by ongoing weakness in the European Automotive market, and weakness in the North American commercial vehicle market. These regional issues are also impacting Tenneco's ride performance business (33% of revenues).

Tenneco 's SGL-2 Speculative Grade Liquidity rating reflects a good liquidity profile that is expected to continue to be supported over the near-term by the company's cash balances, free cash flow generation, and revolving credit availability. As of March 31, 2013, the company maintained cash and cash equivalents of $233 million. Tenneco is anticipated to generate positive free cash flow on an annual basis over the near-term as moderating growth trends require less cash investment in working capital. The $850 million senior secured revolving credit facility, which matures in 2017, had $280 million of borrowings and $39 million of outstanding letters of credit, as of March 31, 2013, and supports operating flexibility. Moody's expects Tenneco's performance over the next twelve months to provide ample cushion under the financial covenants of the bank credit facilities, supporting access to the commitments. Alternative sources of liquidity are restricted by additional indebtedness baskets under the bank credit facilities.

Future events that could drive Tenneco's ratings higher include continued improvement in production levels in the company's overall global automotive and commercial vehicle markets leading to continued improvement in profitability and free cash flow generation. Consideration for a higher rating could arise if these factors, in Moody's view, lead to EBIT/Interest being sustained at over 4.4x and Debt/EBITDA at 2.5x.

Future events that could drive Tenneco's outlook or ratings lower include declines in global OEM production without successful implementation of offsetting restructuring actions; elevated working capital levels resulting in negative free cash flow; or deteriorating liquidity. Consideration for a lower rating could arise if these factors were to lead to Debt/EBITDA approaching 3.5x or EBIT/Interest coverage approaching 3.0x times.

Tenneco, headquartered in Lake Forest, Illinois, is a leading manufacturer of automotive emissions control (approximately 67% of sales) and ride control (approximately 33% of sales) products and systems for both the worldwide original equipment market and aftermarket. Leading brands include Monroe®, Rancho®, Clevite®, and Fric Rot ride control products and Walker®, Fonos, and Gillet emission control products. Net sales in 2012 were approximately $7.4 billion.

The principal methodology used in this rating was the Global Automotive Supplier Industry Methodology published in January 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Timothy L. Harrod
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Tenneco's Ba3 CFR, rating outlook changed to positive
No Related Data.
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