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Rating Action:

Moody's assigns Baa3 rating to Tenneco's new bank credit facilities

09 Mar 2012

Approximately $1.8 billion of debt obligations affected

New York, March 09, 2012 -- Moody's Investors Service assigned Baa3 rating to Tenneco Inc.'s ("Tenneco") new $700 million senior secured revolving credit facility and $250 million term loan A facility. In a related action Moody's affirmed Tenneco's Corporate Family and Probability of Default Ratings at Ba3, and affirmed the ratings of the company's existing senior secured bank debt and senior unsecured notes at Baa3 and B1, respectively. The proceeds from the new term loan A facility will be used to finance the redemption of the company's 8.125% senior unsecured notes due 2015. The Speculative Grade Liquidity Rating also was affirmed at SGL-2. The rating outlook is stable.

Ratings assigned:

New first lien senior secured revolving credit facility, Baa3 (LGD2, 14%);

New $250 million first lien senior secured Term Loan A due 2017, Baa3 (LGD2, 14%);

Ratings affirmed:

Corporate Family rating, at Ba3;

Probability of Default rating, at Ba3;

Existing first lien senior secured revolving credit facility, at Baa3 (LGD1, 6%) -- to be withdrawn upon replacement;

$130 million first lien senior secured letter of credit / revolving loan facility, at Baa3 (LGD1, 6%) -- to be withdrawn upon replacement;

$150 million first lien senior secured Term Loan B due 2016, at Baa3 (LGD2, 14%);

6 7/8% senior unsecured notes due 2020, at B1 (LGD4, 68%);

7.75% senior unsecured notes due 2018, to B1 (LGD4, 68%);

8.125% senior unsecured notes due 2015, at B1 (LGD4, 60%) -- to be withdrawn upon replacement;

Speculative Grade Liquidity Rating, SGL- 2

RATING RATIONALE

Tenneco's Ba3 Corporate Family Rating reflects the company's improved profitability resulting from the recovering global automotive industry and the growing demand for its emission-reduction products in the commercial vehicle sector. Moody's expects the recovery in the North American automotive industry to continue in 2012 with unit sales in the U.S. growing about 16%. Tenneco's North American original equipment business represents about 37% of 2011 revenues. Yet, a lagging economic recovery in Europe (approximately 33% of 2011 revenues), where the impact of sovereign debt risks and austerity programs remains uncertain, may pressure the company's overall margins. For the LTM period ending December 31, 2011, Tenneco's EBIT/Interest (including Moody's standard adjustments) approximated 3.0x and Debt/EBITDA approximated 2.8x.

The stable outlook anticipates that Tenneco will benefit from greater penetration on OEM on and off-road commercial vehicles, and its long-term positions on key existing platforms will sustain credit metrics supportive of the assigned rating. In addition, the interest savings from the refinancing of Tenneco's senior notes with the bank credit facility along with a strong liquidity profile will help mitigate potential challenges from uncertain European economic conditions and slower growth, albeit still positive, in the company's Asian markets.

Tenneco 's SGL-2 Speculative Grade Liquidity profile is expected to continue to be supported over the near-term by the company's cash balances and revolving credit availability. As of December 31, 2011, the company maintained cash and cash equivalents of $214 million. Moody's anticipates Tenneco will generate positive free cash flow on an annual basis over the near-term inclusive of higher levels of working capital requirements to support business growth. The $700 million senior secured revolving credit facility, maturing in 2017, will replace the company's existing $622 revolving credit facility commitment (which reduces to $556 million in March 2012) and $130 million senior secured tranche B letter of credit/revolving loan facility. As of December 31, 2011 the company's had $24 million of borrowings and $58 million of outstanding letters of credit under existing revolving credit facilities. 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 guided by additional indebtedness baskets under the bank credit facilities.

Future events that could drive Tenneco's outlook or ratings higher include continued improvement in production levels in the company's overall global automotive markets or growth driven by regulatory emission control requirements leading to further improvement in credit metrics and consistent free cash flow generation. Consideration for a higher rating could arise if these factors were to lead to EBIT/Interest sustained over 4.0x and Debt/EBITDA approaching 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 4.0x or EBIT/Interest coverage approaching 2.0x times.

The principal methodology used in rating Tenneco 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.

Tenneco, headquartered in Lake Forest, Illinois, is a leading manufacturer of automotive emissions control (approximately 63% of sales) and ride control (approximately 37% 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 2011 were approximately $7.2 billion.

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

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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 assigns Baa3 rating to Tenneco's new bank credit facilities
No Related Data.
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