Fitch Downgrades ArvinMeritor Inc.'s Ratings to 'BB-' & Places it on Rating Watch Negative

    CHICAGO--July 8, 2003--Fitch Ratings has downgraded the ratings of ArvinMeritor Inc.'s (ARM) senior unsecured debt to 'BB+' from 'BBB-' and capital securities to 'BB-' from 'BB+' and placed the Ratings on Watch Negative. The rating action follows the announcement today by ARM to launch a hostile tender offer for Dana Corporation in a proposed debt financed acquisition. The downgrade reflects ARM's intent to acquire growth through debt financed acquisitions and a willingness to substantially raise the leverage in its capital structure. If the transaction is completed on the proposed terms, further rating action is expected. New financing for the transaction is likely to be on a secured basis, further impairing unsecured debt holders. The ratings have been placed on Rating Watch Negative.
    ARM today announced its intent to acquire all outstanding shares of Dana Corporation for $15 per share or $2.2 billion for all outstanding shares in an all cash transaction. In addition, ARM would assume the outstanding net debt and minority interest of Dana Corporation at approximately $2.2 billion. While specific terms and structure of the proposed transaction will emerge as the transaction details become clearer, ARM proposes to finance the transaction with an assortment of debt funding. Consolidated debt of the combined entity would be in the range of $6 billion with consolidated EBITDA of approximately $1.3 billion.
    Faced with intensifying pressures from OEM customers, over capacity in many of the vehicle component areas, and a desire to grow the business and its content per vehicle penetration in an uncertain volume demand environment, ARM intends to grow through acquisition and consolidation with concomitant rationalizations. While Fitch recognizes ARM's historical track record of integration success, a transaction in the magnitude of the proposed Dana acquisition carries execution risk to fully realize the potential synergies. ARM's willingness to incur substantial leverage, when combined with the cyclical nature of its businesses, indicates higher financial risk going forward, even in the event that the transaction does not close.
    At March 31, 2003, ARM's balance sheet debt amounted to $1.483 billion with adjusted debt of $1.773 billion (including about $290 million of asset securitization funding). Cash of $121 million and a largely un-drawn unsecured bank line of $1.15 billion were available for liquidity. To fund the proposed Dana transaction announced today, however, will require large external funding. Although the funding for the transactions is still in its preliminary stages, Fitch expects that the all debt financing structure initially proposed, when it becomes finalized will result in further rating actions. Furthermore, Fitch expects that bank lines will likely become secured in the proposed capitalization. In the event that the transaction is not consummated, the senior unsecured rating is likely to remain below investment grade.
    ArvinMeritor, Inc., headquartered in Troy, Michigan, is a global supplier of various automotive products such as exhaust systems, axles, brakes, suspension and ride control systems, door and roof systems and filters, serving both the original equipment and replacement aftermarkets. ARM was formed in July 2000 through the merger of Arvin Industries, Inc. and Meritor Automotive, Inc.