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Rating Action:

Moody's lowers ArvinMeritor's ratings, Corporate Family to Caa1, outlook negative

17 Mar 2009

Approximately $1.7 billion of debt obligations affected.

New York, March 17, 2009 -- Moody's Investors Service lowered the Corporate Family and Probability of Default ratings of ArvinMeritor, Inc. (ArvinMeritor) to Caa1 from B2. In a related action, the rating of the senior secured revolving credit facility was lowered to B1 from Ba2, and the rating of the senior unsecured notes was lowered to Caa2 from B3. ArvinMeritor's Speculative Grade Liquidity Rating also was lowered to SGL-4 from SGL-3. The outlook is negative.

The downgrade of ArvinMeritor's Corporate Family Rating to Caa1 reflects the weak credit metrics and tightening liquidity the company is expected to experience over the near term as a result of the deterioration in its end markets. The recessionary global economic environment is expected to result in weak demand for the commercial vehicle components that represent about 67% of the company's revenue base. Weak ton-miles driven, and tight credit markets are expected to drive lower purchases of new vehicles by commercial vehicle operators over the near-term. ArvinMeritor's light vehicle segment also will continue to experience lower original equipment demand as consumers defer automotive purchases due to concerns over weak global economies and employment outlooks. These conditions will result in ArvinMeritor generating credit metrics consistent with the Caa level over the intermediate-term and will pressure the company's operating flexibility as financial covenant cushion weakens under the senior secured credit facility.

The negative outlook considers the challenges ArvinMeritor will face in implementing restructuring actions rapidly enough to address the deterioration in its businesses and the potential risks of its liquidity profile if the rate of cash consumption in the business cannot be stemmed. The negative outlook also considers the risk of financial covenant violations under the company's senior secured revolving credit facility over the near-term.

ArvinMeritor's Speculative Grade Liquidity rating of SGL-4 indicates weak liquidity over the next twelve months. As of December 30, 2008, the company had approximately $158 million of cash on hand. Moody's anticipates that the continuing deterioration in the company's end markets will likely result in significant negative free cash flow over the next twelve months. ArvinMeritor's $700 million revolving credit facility had approximately $103 million of funding at December 31, 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 the potential run off of the company's securitization/factoring facilities. 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 at each quarter-end 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, will likely pressure covenant cushions over the near-term. The revolving credit is secured by a first lien on certain assets of the company of about $688 million of the company's assets, primarily consisting of eligible domestic U.S. accounts receivable, inventory, plant, property and equipment, intellectual property and the company's investment in all or a portion of certain of its wholly-owned subsidiaries. Negative covenants under the revolver limit both annual and cumulative amounts of asset sales.

The following ratings are lowered:

ArvinMeritor, Inc.

Corporate Family Rating, to Caa1 from B2;

Probability of Default, to Caa1 from B2;

Senior secured bank debt, to B1 (LGD1, 10%) from Ba2 (LGD1, 7%);

Senior unsecured notes, to Caa2 (LGD4, 64%) from B3 (LGD4, 61%);

Shelf unsecured notes, to (P)Caa2 (LGD4, 64%) from (P)B3 (LGD4, 61%);

Speculative Grade Liquidity Rating, to SGL-4 from SGL-3

Arvin International PLC

Unsecured notes guaranteed by ArvinMeritor, Inc., to Caa2 (LGD4, 64%) from B3 (LGD4, 61%)

The last rating action on ArvinMeritor was on January 13, 2009 when the Corporate Family Rating was lowered to B2 and left under review for further downgrade.

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 to Caa1, outlook negative
No Related Data.
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