DBRS Places ArvinMeritor Under Review with Negative Implications

DBRS has today placed the ratings of ArvinMeritor Inc. (ARM or the Company) Under Review with Negative Implications following the announcement today by the Company that its board of directors had approved a plan to spin off its Light Vehicle Systems (LVS) business to ARM shareholders, with the Commercial Vehicles Systems (CVS) remaining with the Company. The rating actions reflect the adversely impacted business profile, given the reduced diversification resulting from this transaction.

The planned spin-off of the LVS business, (which is to be named Arvin Innovation Inc.), is expected to be implemented through a pro-rata tax-free stock dividend to ARM shareholders. Although not requiring shareholder approval, the spin-off remains subject to market conditions as well as regulatory and other customary approvals, with the transaction expected to be completed within the next twelve months.

While the remaining CVS segment, (which has represented 65% of total Company sales for the past two fiscal years), generates significantly higher margins than the LVS business, DBRS notes that the business risk profile of ARM would increase through the planned spin-off given the reduced diversification that would result; the CVS segment is subject to considerable volatility given periodic regulatory changes (environmental/fuel consumption) in major markets such as Western Europe and North America that highly influence unit sales in any given year.

DBRS is placing the Company’s ratings Under Review with Negative Implications, as ARM has thus far not disclosed any details as to the future capital structures of both ARM and Arvin Innovation Inc. respectively. (As of March 31, 2008, total debt of the Company amounted to $1.3 billion, with leverage equivalent to approximately 65% of total capitalization.) In the event that leverage would remain at similar or higher levels, a ratings downgrade would be likely. DBRS will continue to monitor the proposed transaction and will determine further rating actions once further information regarding the resulting financial profile of ARM becomes available.

For more information on ARM, please see the DBRS rating report published on February 21, 2008.

Note:
All figures are in U.S. dollars unless otherwise noted.