Moody's rates ArvinMeritor notes Ba2

Moody's Investors Service said it assigned a Ba2 rating to about $300 million of new unsecured notes maturing in 2015, which ArvinMeritor Inc. intends to issue under an exchange offer to existing holders of two debt obligations.

The exchange offer will be for up to $300 million par value split, based on amounts tendered, between the 7.125% senior unsecured notes maturing in March 2009 ($150 million total) and the 6.80% senior unsecured notes maturing in February 2009 (total $499 million).

Moody's said the exchange will not increase the amount of existing debt of the company but will beneficially extend the debt maturity profile of the firm.

The ratings continue to reflect ArvinMeritor's elevated leverage, the challenging operating environment in its LVS group partially offset by improving results in its CVS group. In addition, the rating reflects expectations of negative free cash flow for the current fiscal year, the impact of the company's restructuring program on future results, positive earnings and cash flow developments for fiscal 2006, prospects for significant asset sales to facilitate incremental debt reduction, and an adequate liquidity profile, the agency said.

Furthermore, Moody's said the ratings take into account the cyclical nature of the company's automotive and commercial vehicle markets, ongoing pricing pressure from raw materials and agreed customer price-downs.

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