 |
February 26, 2008 |
|
|
|
 |
ARVINMERITOR: DBRS Confirms 'BB(low)' Ratings on Unsec. Notes DBRS confirmed the ratings for the Senior Unsecured Notes and Convertible Senior Unsecured Notes of ArvinMeritor Inc. The trends have been changed from Stable to Negative, reflecting ARM's recent losses and extensive working capital usage, with limited prospects for debt reduction in the near term given adverse industry conditions and the Company's ongoing expansion and restructuring activities. However, ARM's earnings should improve over the medium term in line with an expected spike in Class 8 truck demand in 2009 in North America, with the Company also slated to reap eventual rewards from its restructuring efforts. In 2007, ARM completed the divestitures of its light vehicle aftermarket and emissions technology businesses, with proceeds being applied toward debt reduction and pension contributions. While the divestitures effectively remove two lower-margin businesses and have resulted in a reduction in debt levels, in DBRS's opinion this is partly offset by ARM's increased exposure to the highly volatile commercial vehicle industry, with the commercial vehicle systems segment now accounting for approximately two-thirds of total revenues. Accordingly, F2007 earnings deteriorated significantly year- over-year given the sharp drop (30%) in Class 8 truck production following extensive pre-buying activity in 2006 in advance of new emissions regulations. This has been compounded by economic concerns in the United States that have considerably delayed the rebound in demand/production, with this trend expected to continue well into 2008. While ARM's light vehicle systems segment generated modestly higher earnings in F2007, margins will remain pressured in F2008 given ongoing pricing cutbacks demanded by OEMs, combined with more aggressive production declines of the Detroit 3 given their increased flexibility in this regard as a result of their revised agreements with the United Auto Workers. In response to the challenging environment, ARM has persisted with restructuring activities and launched Performance Plus in 2007, which aims to improve the Company's global footprint and cost competitiveness through various measures including the elimination of up to 2,800 positions in North America and Europe. ARM is also expanding its presence in low-cost countries and seeking to benefit from growth prospects in Asia as it presently has numerous investments underway in China and India with the goal of achievingUS$1.6 billion in regional sales by F2012, (almost triple the level of F2007 regional sales). Additionally, the Company recently improved its liquidity through the December 2007 renegotiation of its senior secured revolving credit facility. The availability of the former facility was somewhat compromised due to covenants; the new facility (although reduced in size from US$900 million to US$700 million) has an amended covenant package that significantly enhances availability. Over the medium term, as the North American Class 8 truck market rebounds and ARM's cost position improves, firmer margins should result. DBRS expects only modest earnings improvement over the near term, with debt levels remaining constant. However, in the event that working capital requirements or persistent losses result in further deterioration of the financial profile, a ratings downgrade would be considered. Debt Rating Issuer Rated Action Rating ------ ----- ------- ------ ArvinMeritor Inc. Conv. Sr. Trend Change BB (low)Neg Unsec. Notes ArvinMeritor Inc. Sr. Unsec. Trend Change BB (low)Neg Notes |
|
|
||
|
Today's Top Stories have been selected from the Troubled Company Reporter - Asia Pacific. To receive the Full TCR-AP please CLICK HERE.
