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Rating Action:

Moody's lowers ArvinMeritor's ratings, Corporate Family at B2, ratings remain on review for possible downgrade

13 Jan 2009

Approximately $1.8 billion of debt obligations affected.

New York, January 13, 2009 -- Moody's Investors Service lowered the Corporate Family and Probability of Default ratings of ArvinMeritor, Inc. (ArvinMeritor) to B2 from B1. In a related action, the rating of the senior secured revolving credit facility was lowered to Ba2 from Ba1, and the rating of the senior unsecured notes was lowered to B3 from B2. The ratings remain on review for further possible downgrade. ArvinMeritor's Speculative Grade Liquidity Rating also was lowered to SGL-3 from SGL-2.

The downgrade of ArvinMeritor's Corporate Family Rating to B2 reflects the expected impact of a dramatic decline of global economic conditions and challenges in the global credit markets on the demand for commercial vehicles and passenger cars. These conditions curtailed the company's financial performance and contributed to the recent announcement that the company currently can not capture the appropriate value for its Light Vehicles Segment (LVS) business by selling the business as a whole. As a result of this announcement and deteriorating global automobile production volumes, Moody's believes the LVS business will have negative earnings and cash flow impacts on the company for a longer period than previously anticipated. However, the company stated that it remains committed to separating the LVS business.

Because of the increasingly difficult business environment, ArvinMeritor withdrew its full year fiscal 2009 guidance in December, and subsequently withdrew its first quarter 2009 guidance with the announced deferral of the LVS divestment. The sequential suspension of guidance estimates suggests more rapid deterioration in the company's operating performance, and when coupled with the potential for a prolonged financial drain from the LVS business, indicates that overall financial metrics will weaken further.

The review will consider ArvinMeritor's potential to develop strategic alternatives for the LVS business and any potential operational improvements which the company can implement to improve business performance. The review will also consider the impact of deteriorating economic conditions on ArvinMeritor's ongoing commercial vehicle segment (CVS) and the company's ability to maintain credit metrics consistent with the assigned ratings through further restructuring initiatives. While ArvinMeritor's operating performance has benefited from recent restructuring actions, the production of commercial vehicles for 2009 in North America and abroad is expected to be further negatively impacted by weakening global economies and continuing tight credit markets. At September 30, 2008, ArvinMeritor's LTM EBIT/Interest coverage was 2.5x and debt/EBITDA was 4.5x, both including Moody's standard adjustments.

The review will also focus on ArvinMeritor's ability to maintain adequate levels of liquidity over the coming months. A deterioration in liquidity resulting from the rapid decline in the company's end markets, required payment of debt maturities, reductions in the company's securitization facilities, or from other requirements, may cause the ratings to be lowered.

ArvinMeritor's Speculative Grade Liquidity rating of SGL-3 indicates adequate liquidity over the next twelve months. As of September, 30 2008 the company had approximately $497MM of cash on hand, about half of the cash is located in the U.S. and Europe. The company's previously withdrawn 2009 guidance provided in November 2008 indicated an expectation of breakeven FCF. With the significant deterioration of global economies and financial markets, and uncertainty over the disposition of the company's LVS business, negative FCF will likely result in fiscal 2009. ArvinMeritor's $700MM revolving credit facility was undrawn at September 30, 2008 with $38 million of LCs outstanding. The facility matures in June 2011. Moody's believes there are a number of cash uses over the next twelve months, including $77 million of unsecured note maturities in 2009. Also, as of September 30, 2009 the company utilized about $521 million of securitization/factoring facilities which mature within one year. If current market conditions continue to deteriorate, the company may be required to refinance some of the outstanding securitizations/factoring arrangements with its revolving credit facility or with cash, limiting current liquidity levels. The principal financial covenant is a senior secured leverage test of 2.5 times through March 31, 2009 and 2.0 times thereafter. Reduced operating performance due to industry pressures, combined with any additional revolver funding, may pressure covenant cushions over the next twelve months. The revolving credit is secured by a first lien on certain assets of the company of about $850MM and by a second lien on the receivables securing the company's domestic securitization facilities. Negative covenants under the revolver limit both annual and cumulative amounts of asset sales.

The following ratings are lowered and remain under review for possible downgrade:

ArvinMeritor, Inc.

Corporate Family Rating, to B2 from B1

Probability of Default, to B2 from B1

Senior Secured bank debt, to Ba2 (LGD1, 7%) from Ba1 (LGD1, 7%)

Senior Unsecured notes, to B3 (LGD4, 61%) from B2 (LGD4, 61%)

Shelf unsecured notes, to (P)B3 (LGD4, 61%) from (P)B2 (LGD4, 61%)

Speculative Grade Liquidity Rating, to SGL-3 from SGL-2

Arvin International PLC

Unsecured notes guaranteed by ArvinMeritor, Inc., to B3 (LGD4, 61%) from B2 (LGD4, 61%)

The last rating action on ArvinMeritor was on May 30, 2008 when the B1 Corporate Family Rating was affirmed.

The principal methodology used in rating ArvinMeritor was the Global Auto Supplier Industry Methodology, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

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 in fiscal 2008 were approximately $7.2 billion.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Timothy L. Harrod
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's lowers ArvinMeritor's ratings, Corporate Family at B2, ratings remain on review for possible downgrade
No Related Data.
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