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Federal Mogul Corp.'s $1 Billion Senior Debt Expected to be Rated 'BBB-'

17 June 1998

Federal Mogul Corp.'s $1 Billion Senior Debt Expected to be Rated 'BBB-' By Fitch IBCA - Fitch IBCA Financial Wire -

    NEW YORK, June 16 -- Federal Mogul Corp.'s $1 billion global
senior debt issue is expected to be rated 'BBB-' by Fitch IBCA.  This offering
is being made under the company's outstanding universal shelf registration,
under which $800 million will remain available after this offering.  Federal
Mogul will use the proceeds to refinance outstanding bank debt incurred to
finance its acquisition of T&N plc.
    The rating reflects the company's solid business position, well-balanced
operations, strong free cash generation, as well as management's ability and
commitment to achieve and maintain an investment grade credit profile.
    Federal Mogul has solidified its core automotive components businesses and
recently enhanced them with two major acquisitions: T&N plc, and Fel-Pro Inc.
The product portfolio is now clearly focused two core businesses: engine
components and sealing systems, with third group of general products
containing a potential new core operation.  Additionally, the portfolio is
well-balanced and diversified across customers, original equipment (OE) versus
aftermarket exposure, and geographic markets.  No one customer accounts for
more than 6% of total sales.  Federal Mogul has reversed its operating margin
erosion, and has upside growth potential with new products flowing from its
strong technical base, well-defined acquisition synergies, in addition to
following many of its customers as they continue to globalize their own
operations.
    Fitch IBCA expects that the company will continue to generate strong cash
flows, supported by volume growth and margin expansion.  With ongoing capex
requirements far less than cash flows, management can support its commitment
to use surplus cash to reduce leverage and maintain investment grade ratings.
    Federal Mogul continues to operate in a tough competitive environment,
characterized by escalating customer pressures and no pricing flexibility.
These OE customer demands for systems capability and technical excellence are
driving supplier industry consolidation.
    Federal Mogul intends to expand in this environment, both through organic
growth and through acquisitions, some of which could be material, and in the
near future.  Although the company has identified and quantified acquisition
synergies, integration risk exists as to the timing of such savings.
    Because the company bridge-financed two major acquisitions with debt,
credit protection measures were temporarily stretched.  However, the company
issued equity securities to reduce leverage; the recent common share offering
lowered total debt by $592 million, and rapidly eased debt/EBITDA to
3.59 times from the peak pro forma 5.58 times at year-end 1997.  The mandated
sale of the thin wall engine bearings business, acquired with T&N, is expected
to generate at least $400 million in net proceeds for debt reduction, bringing
pro forma 1997 debt/EBITDA to approximately 2.91 times, consistent with the
current rating.
    Management has demonstrated its ability to restore financial flexibility
rapidly, and remains committed to following this financing model in the future
in order to maintain credit protection measurements consistent with an
investment grade rating.  Fitch IBCA expects that debt/EBITDA will remain at
or under 3 times, and that management will approach its 45% debt/capital
target even as it contemplates further acquisitions.
    The company took on asbestos claims exposure with T&N, but Fitch IBCA
considers these potential claims to be manageable from cash flow standpoint
and further mitigated by insurance coverage.