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Fitch Places ArvinMeritor on Rating Watch Negative following Spinoff Announcement
CHICAGO & NEW YORK-(Business Wire)-May 6, 2008 - Fitch has placed the ratings of ArvinMeritor (NYSE: ARM) on Rating Watch Negative following the announced spinoff of ArvinMeritor's Light Vehicle Systems (LVS) group. As information becomes available Fitch will review the details of each entity (including capital structure, bank financing terms and legacy liabilities) and resolve the Rating Watch designation. A list of current ratings follows below.
The spinoff will reduce the business diversification of the current consolidated entity, increasing exposure of the remaining Commercial Vehicle Systems (CVS) business to the cyclical truck market, and increasing exposure of the LVS entity to competitive conditions and individual manufacturers in the automotive market. The benefits of recent restructuring actions have begun to be reflected in financial results, although margins at LVS currently remain at low levels and have been challenging to stabilize. Duplicating corporate functions at the LVS entity concurrent with the spin will also pressure margins.
Total liquidity requirements will likely increase from current levels in order to finance working capital requirements, continuing restructuring actions, capital expenditures, and to act as a buffer against cyclical volatility. The combined entity has forecast continued negative cash flow for its current fiscal year, indicating that total debt to be allocated at the time of the spin will be higher than current levels. Existing senior unsecured debt could be pushed farther down the capital structure or face reduced recovery prospects depending on the allocation of debt and new financing arrangements.
Fitch has placed the following ratings for ARM on Rating Watch Negative:
— Issuer Default Rating (IDR) 'B';
— Senior Unsecured 'B/RR4'
— Bank Credit Facility 'BB/RR1'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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