Fitch Places Sr Unsec Rtg Of Federal Mogul On Rtg Watch Neg
11 December 2000
Fitch Places Sr Unsec Rtg Of Federal Mogul On Rtg Watch Neg
NEW YORK--Dec. 11, 2000--Fitch places Federal Mogul Corp.'s (FMO) `BB-` senior unsecured debt rating on Rating Watch Negative.The rating previously had a Negative Outlook due to a number of ongoing issues, including weakened operating performance and the size and pace of asbestos liability payments. The rating has been moved to Rating Watch Negative due to the rapidly deteriorating environment for asbestos litigation combined with an increasing probability that FMO will need to significantly change its bank facilities to mitigate the potential of liquidity issues.
The rising number of bankruptcies among asbestos-related companies has increased the focus of plaintiffs' attorneys on the remaining companies such as FMO. As previously disclosed, FMO hired National Economic Research Associates (NERA) to review its asbestos liabilities, the results of which are expected in late December 2000. FMO currently estimates total asbestos payments of $330 million each in 2000 and 2001, amounts that restrict FMO's ability to reduce its debt burden in the short to intermediate term. While FMO has asbestos-related insurance that may be triggered in the near future due to the heavy volume of claims settlements, the timeliness of insurance reimbursement may become a concern.
FMO will likely be in violation of one of the covenants of its $1.75 billion bank facility at year-end and has indicated that negotiations with its banks are in process. While the potential outcomes vary widely, particularly in their impact on FMO's unsecured debt ratings, Fitch views the successful completion of the bank negotiations as paramount to FMO's liquidity going forward, as FMO had about $1.2 billion drawn on the facility at Sept. 30, 2000.
FMO's operating performance has been impaired due to several factors, including the effects of a weak North American aftermarket and a sharply declining heavy-duty truck market. Also, FMO has delivered less in synergies from recent acquisitions than originally targeted and previously planned divestitures have been postponed due to poor market conditions.
Fitch will fully review the ratings after results of NERA's asbestos study and the bank facility negotiations are disclosed.
Federal Mogul Corp., headquartered in Southfield, MI, is a global producer and distributor of a broad range of components for automobiles and light trucks, heavy-duty trucks, farm and construction vehicles and industrial products. The company's major products and systems focus on engines, sealing and braking, which it sells to OE producers as well as to replacement markets.