Correction - Fitch Downgrades ArvinMeritor's IDR to 'BB-'; Outlook Negative.

CHICAGO -- This is a correction for a press release published earlier today. It corrects "Interest Coverage" to "Fixed Charge Coverage Ratio" in the fourth paragraph.).

Fitch Ratings has downgraded its ratings on ArvinMeritor (ARM) as follows:

--Issuer Default Rating (IDR) to 'BB-' from 'BB';

--Senior secured revolver to 'BB' from 'BB+'.

--Senior unsecured notes to 'B+' from 'BB-'.

The Rating Outlook is Negative. Including the undrawn portion of the secured revolver, approximately $2.2 billion of debt is affected by these actions.

Fitch's downgrade reflects continuing and expanded negative cash flow, and the associated balance sheet erosion. Fitch expects negative free cash flow to persist through at least the first half of ARM's fiscal 2008, and the timing and extent of a reversion to positive free cash flow remains uncertain. Improvement in operating performance will depend on the pace and strength of a rebound in the truck market, as well as the success of restructuring efforts in the low-margin light vehicle systems segment.

For the last twelve months (LTM) ended June 30, ARM's free cash flow (excluding receivable securitizations and factoring from operating cash flow) was negative $334 million, including a non-recurring working capital adjustment associated with a divestiture and a voluntary pension contribution. Negative cash flow was financed in part by proceeds from asset sales. The company also increased utilization under an accounts receivable (A/R) securitization facility, increasing Total Adjusted Debt to $1.8 billion at the end of the fiscal third quarter from $1.7 billion at fiscal year-end September 30, 2006. Expectations of continued weakness in operating performance caused ARM to obtain an amendment to its Fixed Charge Coverage Ratio for the fiscal fourth quarter, continuing through fiscal 2008.

The ability to return to positive free cash flow in 2008 remains uncertain and any improvement in the balance sheet is expected to be limited. Further pressuring operating cash flow will be a continued high level of restructuring outflows and higher capital expenditures. LTM capital expenditures were $118 million, representing 1.5% of sales. ARM's capital investment, as a percent of revenues is one of the lowest among the automotive suppliers covered by Fitch. (See Fitch's report dated September 24, 2007 titled 'Liquidity Focus: Auto Suppliers') Given the company's level of capital investment relative to its peers, Fitch is concerned additional expenditures may be needed, potentially constraining the company's ability to generate Free Cash Flow. Incremental capital investment is likely needed to improve CVS Europe operating efficiency, expand LVS overseas manufacturing, fund incremental restructuring efforts, and to invest in supplier parks required at automakers' facilities as well as a reduction in new vehicle life cycles. Financial support to stressed Tier II and Tier III suppliers can also require capital investment.

Weakness in the housing market could extend the current cyclical trough and mute the expected upswing in Class 8 truck demand ahead of more stringent 2010 diesel emission regulations. In addition, inefficiencies in CVS Europe operations have arisen due to higher than expected demand. ARM was unable to capitalize on higher volumes and suffered higher costs for premium freight, higher cost sources of supply and customer late penalties. Fitch expects inefficiencies to continue well into fiscal 2008 and ARM is likely to increase investment to improve operating flexibility.

ARM has demonstrated improvement in LVS profitability, although margins remain modest. Any improvement will be derived largely from restructuring programs, as margins remain under pressure from significant exposure to the Detroit Three, annual contractual pricedowns, higher raw material costs and costs related to a financially strained automotive supply base.

Cash flow has been impacted by a working capital outflow of included in fiscal year-to-date discontinued operations cash flow of negative $118 million. The company expects to recoup about $40 million in the first quarter of fiscal 2008 from cash purchase price adjustments. In addition, ARM made substantial pension contributions during fiscal 2007, including a significant discretionary payment to its UK plan. With the improved funded status, pension contributions will be reduced going forward.

ARM maintains adequate liquidity and has no major debt maturities until after 2010. Fitch calculates, at the end of the fiscal third quarter, liquidity was $1.3 billion, including $870 million available under a revolving credit facility, $178 million in available securitization and $284 million in cash and cash equivalents. However, coverage and leverage ratios have eroded. For the LTM as of June 30, Operating EBITDA to Gross Interest Expense was 2.8 times (x) versus 2.9x at the end of fiscal 2006. Over the same time period, Total Debt to Operating EBITDA was 3.8x compared with 3.3x, while Total Adjusted Debt to Operating EBITDAR climbed to 4.9x from 4.0x at fiscal year end, reflecting higher accounts receivable financing.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.