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Rating Action:

Moody's raises Tenneco's Corporate Family Rating to B1, outlook Positive

Global Credit Research - 09 Dec 2010

Approximately $1.9 billion of debt obligations affected

New York, December 09, 2010 -- Moody's Investors Service raised the ratings of Tenneco Inc. ("Tenneco") -- Corporate Family and Probability of Default Ratings to B1 from B2, and assigned a B2 rating to the company's new $500 million senior unsecured notes. In a related action Moody's raised the ratings on the company's existing senior secured bank debt to Ba1 from Ba2, and affirmed the ratings on the existing senior unsecured notes at B2. The rating outlook was revised to positive from stable.

The following ratings were raised:

Corporate Family rating, to B1 from B2;

Probability of Default rating, to B1 from B2;

First lien senior secured revolving credit facility, to Ba1 (LGD2, 11%) from Ba2 (LGD2, 12%);

$130 million first lien senior secured letter of credit / revolving loan facility, to Ba1 (LGD2, 11%) from Ba2 (LGD2, 12%);

$150 million first lien senior secured Term Loan B due 2016, to Ba1 (LGD2, 11%) from Ba2 (LGD2, 12%);

8.625% guaranteed senior subordinated notes (any remaining amounts) due November 2014, to B3 (LGD6, 97%) from Caa1 (LGD5, 86%), (ratings to be withdrawn if fully repaid);

The following rating was assigned:

B2 (LGD4, 66%) to the new $500 million senior unsecured notes due 2020;

The following ratings were affirmed:

7.75% senior unsecured notes due 2018, B2 (LGD4, 66%);

8.125% guaranteed senior unsecured notes due 2015, B2 (LGD4, 66%)

The last rating action for Tenneco was on July 29, 2010 when ratings were assigned to the company's 7.75% unsecured notes and the B2 Corporate Family Rating was affirmed.

RATING RATIONALE

Tenneco has announced an offering of $500 million of new senior unsecured notes and the tender offer and consent solicitation of the existing $500 million 8.625% guaranteed senior subordinated notes. The net proceeds from the new senior unsecured notes will be used to fund the tender offer and consent solicitation. Moody's expects Tenneco to redeem any untendered amounts following the completion of the tender.

The upgrade of Tenneco's Corporate Family Rating to B1 incorporates the company's better than anticipated performance over the past two quarters and reduced debt service costs from the company's recent and proposed debt refinancing. Moody's expects that Tenneco's continued improving performance combined with the interest expense savings from the company's current and recent debt refinancing to solidly support the assigned rating. For the LTM period ending September 30, 2010, Tenneco's EBIT/Interest (including Moody's standard adjustments) approximated 2.1x and Debt/EBITDA approximated 3.4x. The pro forma impact of the combined debt refinancing results in an LTM EBIT/Interest of about 2.3x.

The positive outlook anticipates that Tenneco's credit metrics will benefit from higher commercial vehicle program launches to new customers beginning in late 2010 and into 2011 related to meeting emissions regulations over the intermediate-term. This increased business is expected to partially mitigate our expectations of a lagging recovery in the European economy (approximately 44% of Tenneco's revenues are in the company's European, South American, and Indian markets). In addition, the company's improved cost structure is expected to support growth in operating performance.

Tenneco is expected to have a good liquidity profile over the near-term supported by the company's cash balances and revolving credit availability. As of September 30, 2010, the company maintained cash and cash equivalents of $184 million. Tenneco's cash balances and Moody's expectation of positive free cash flow generation by the company over the near-term are expected to more than support nominal term loan amortization and potential risk of non-renewal of factoring lines. The $622 million revolving credit facility commitments will reduce to $556 million March 2012 and matures in May 2014. The $130 million senior secured tranche B revolver/letter of credit facility mature in March 2014. As of September 30, 2010 there were $86 million of funded borrowings and $52 million of outstanding letters of credit under the combined 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 limited to additional indebtedness baskets under the bank credit facilities.

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 2009 were approximately $4.6 billion.

The principal methodologies used in this rating were Global Automotive Supplier Industry Methodology 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.

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 assigning a credit rating.

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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
Andris G. Kalnins
Senior Vice President
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 Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's raises Tenneco's Corporate Family Rating to B1, outlook Positive
No Related Data.
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