S&P upgrades Meritor, rates convertibles B+

S&P said it raised its corporate credit rating to BB- from B+ on Meritor Inc. The outlook is positive.

At the same time, S&P assigned a B+ issue-level rating and 5 recovery rating to the company's proposed $300 million senior convertible notes due 2037. The 5 recovery rating indicates an expectation for modest (10% to 30%; rounded estimate 15%) recovery in the event of payment default.

S&P also raised its issue-level ratings on the company's senior unsecured debt to B+ from B. The 5 recovery rating is unchanged and reflects an expectation for modest recovery (10% to 30%; rounded estimate 15%) in the event of payment default.

“The upgrade reflects our view that Meritor's credit measures will continue to improve over the next few months, following a number of recent announcements,” S&P said in a news release.

The company issued a notice of partial redemption for $100 million of its 6¾% notes due 2021. Meritor also announced benefit modifications that will reduce its retiree medical liability by about $315 million in fiscal year 2017, resulting in a $40 million annual improvement in retiree medical expense over the next two fiscal years and a $17 million reduction in annual cash benefit payments. The company also announced the sale of its ownership stake in a joint venture, and S&P anticipates the company will use the proceeds to reduce debt further.

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