ArvinMeritor to use $2.4 billion bank debt, junk bonds for proposed Dana acquisition

By Peter Heap

New York, July 8 - ArvinMeritor, Inc.'s proposed acquisition of Dana Corp. would be financed with $2.4 billion of new bank debt and high-yield bonds.

The package would include a new revolver - which would be largely unutilized - term loans, a new accounts receivable securitization facility and high-yield bonds "as appropriate," the company said Tuesday.

"I think we're confident that we have the ability to finance this transaction," said Carl Soderstrom, ArvinMeritor's chief financial officer, in a conference call. "And we have talked to a number of our banks. They are all very interested."

Soderstrom added that the company will reveal specifics of the financing "in due time."

ArvinMeritor announced Tuesday it was offering $15 per share for Dana for a total equity value of $2.2 billion.

The Troy, Mich. auto maker said it was making the unsolicited bid after Dana, based in Toledo, Ohio, refused to discuss a combination.

Standard & Poor's already has ArvinMeritor at junk levels, rating its notes at BB+. In response to the proposed acquisition it put the company on CreditWatch negative. Moody's Investors Service rates ArvinMeritor's notes at Baa3 but put it on review for downgrade. Fitch Ratings cut ArvinMeritor's notes to BB+ from BBB- and put them on Rating Watch Negative.

On Tuesday's conference call, Soderstrom said ArvinMeritor would aim to return to investment grade within three years, something the company believes is possible without cutting its dividend or using equity financing.

Larry Yost, chairman and chief executive officer, noted dividend policy is set by the board.

"But my opinion is that the cash that this business would generate would be more than sufficient to get us back to investment-grade rating, as we have said, within two or three years after the close and continue to pay the dividend that we currently have," he added.

Pro forma for the acquisition, the company would have net debt of $5.9 billion made up of $3.5 billion of existing debt and the $2.4 billion of financing for the acquisition.

ArvinMeritor said it would have a conservative profile with less than $800 million maturing before 2008.

The new term debt is expected to have maturities between five and 10 years.

ArvinMeritor said it has been working with its financial adviser UBS Investment Bank "for some time now" and has developed a financing plan it believes is "appropriate and achievable."

It expects to work with its major relationship banks to put in place credit facilities to close the transaction.

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