The Auto Channel
The Largest Independent Automotive Research Resource
The Largest Independent Automotive Research Resource
Official Website of the New Car Buyer

Fitch Rates ArvinMeritor Inc.'s Senior Unsecured Debt 'BBB'

26 September 2000

Fitch Rates ArvinMeritor Inc.'s Senior Unsecured Debt 'BBB'

    NEW YORK--Sept. 26, 2000--ArvinMeritor Inc.'s (ARM) senior unsecured debt is rated `BBB' by Fitch. Fitch has also assigned a `BBB-' rating to ARM's capital securities and an `F2' to the company's commercial paper program. ARM was formed in July 2000 through the merger of Arvin Industries, Inc. and Meritor Automotive, Inc. The combination creates the 11th largest automotive supplier in the industry, with pro forma trailing twelve-month sales of $7.9 billion. Total pro forma debt at 6/30/2000 was $1.63 billion, including $74 million of mandatorily redeemable preferred securities issued by Arvin Capital I, a subsidiary trust.
    The rating reflects ARM's strong market positions, geographic presence, diversified end-markets and products, good credit profile and improved financial flexibility. Also considered is the inherent cyclicality of auto and truck production, increasing competition and price pressure, and challenges of capturing operational merger synergies.
    Although near-term results will be tempered by continued softness in the North American aftermarket (roughly 60% of pro forma sales are OE, the remainder is aftermarket) and the slowdown in the North American heavy truck industry, the combined company should benefit longer term from complementary product lines and cross-selling opportunities. Management has identified many operating and cost synergies that will help in its goal of reaching operating margins of 10%, supported by both companies' good history of integrating recent acquisitions and continuously implementing cost reductions. Pro forma consolidated operating margins for the latest fiscal years and recent 9 months were approximately 7%.
    The rating also considers ARM's moderate credit profile. On a proforma basis, leverage, as defined by debt/EBITDA, was 2.0 times (x) at 6/30/2000, and EBITDA/interest coverage was 5.9x. However, debt financed acquisitions will likely play a significant part in ARM's growth strategy, if management's goal of doubling revenues over a five-year horizon is to be achieved.
    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 (OE) and replacement aftermarkets.
    Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance Markets worldwide.