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Rating Action:

Moody's Confirms Goodyear's ratings, CFR at B1; negative outlook

13 May 2020

Approximately $3.9 billion of Rated Debt Affected

New York, May 13, 2020 -- Moody's Investors Service confirmed the ratings of The Goodyear Tire & Rubber Company ("Goodyear") including the corporate family and Probability of Default ratings at B1 and B1-PD, respectively; Goodyear's senior secured second-lien term loan at Ba2; senior unsecured guaranteed notes at B2; senior unsecured unguaranteed notes at B3; and Goodyear Europe B.V.'s senior unsecured guaranteed notes at Ba3. Moody's also assigned a B2 rating to Goodyear's new $600 million senior unsecured note. The Speculative Grade Liquidity Rating remains SGL-3. The rating outlook is negative. This action concludes the review for downgrade initiated on March 25, 2020.

Goodyear recently announced the issuance of $600 million in senior unsecured notes which will rank pari passu with Goodyear's existing senior unsecured guaranteed notes. The net proceeds of the notes will be used for general corporate purposes, enhance liquidity, and provide liquidity to repay Goodyear's $282 million of 8.75% Notes due in August 2020.

Ratings Confirmed::

..Issuer: Goodyear Tire & Rubber Company (The)

.... Corporate Family Rating, at B1;

.... Probability of Default Rating, at B1-PD;

....Senior Secured Bank Credit Facility, at Ba2 (LGD2);

....Gtd Senior Unsecured Regular Bond/Debenture, at B2 (LGD4);

....Senior Unsecured Regular Bond/Debenture, at B3 (LGD6);

..Issuer: Goodyear Europe B.V.

....Senior Unsecured Regular Bond/Debenture, at Ba3 (LGD3);

Rating Assigned:

..Issuer: Goodyear Tire & Rubber Company (The)

....New Gtd Senior Unsecured Regular Bond/Debenture, at B2 (LGD4)

Outlook Actions:

..Issuer: Goodyear Europe B.V.

....Outlook, Changed To Negative from Rating Under Review

..Issuer: Goodyear Tire & Rubber Company (The)

....Outlook, Changed To Negative from Rating Under Review

RATINGS RATIONALE

Goodyear's B1 CFR reflects Moody's view that the company's credit metrics will materially weaken over the coming quarters from what had already been relatively high leverage with Debt/EBITDA at 5.6x at March 31, 2020. Goodyear's operations are expected to have a significant negative free cash flow in the current quarter as a result of previously announced temporary shutdowns of the company's US and European manufacturing operations. Goodyear's manufacturing operations in these regions are expected to gradually resume over the coming weeks.

Moody's now expects Goodyear to generate negative free cash flow in the $400 million to $450 million range over the next 4 quarters, with the highest cash burn in the second quarter of 2020 due to the gradual recovery of manufacturing operations in the US and Europe along with softening demand. Nonetheless, with recovering demand through the second half of 2020 and into 2021 and low raw material input costs, Goodyear is expected to be on a path to restoring stronger profitability in 2021.

The new notes offering will support Goodyear's liquidity and operating flexibility during this timeframe. Moody's continues to expect seasonally higher second half 2020 free cash flow generation, and currently low raw material costs should improve the company's cash flow profile into the first quarter of 2021. In addition, announced cost reduction actions should also support the conservation of the company's cash levels and profitability into 2021. Yet, the pace of improvement in consumer demand remains a risk as social distancing policies and consumer concerns over coronavirus contagion continue over the intermediate-term. Revenue recovery is a risk as about three-fourths of Goodyear's volume is in the tire aftermarket, and consumers have some discretion about when and the type of tires that are replaced

The negative outlook reflects the uncertain pace of improving consumer demand, risks around the pace of the resumption and the efficiencies of manufacturing operations for Goodyear's OEM customers, and the risk of a second wave of increasing coronavirus infection rates as the US and Europe regions begin opening up their economies.

Goodyear's Speculative Grade Liquidity Rating of SGL-3 incorporates Moody's expectation of sizeable availability under the company's credit facilities, and cash balances of $971 million as of March 31, 2020. Cash balances will be further bolstered from the proceeds of the announced bond offering, which will provide additional operating flexibility through 2020. Goodyear has ample liquidity to repay the August 2020 $282 million 8.75% note at maturity. As of March 31, 2020, the $2.0 billion ABL revolving credit facility had $420 million of borrowings and $17 million of letters of credit resulting in about $1.4 billion of availability after considering the borrowing base and pro forma for the ABL refinancing in April. The facility matures in April 2025. Goodyear's Euro 800 million revolving credit facility had $66 million of borrowing as of March 31, 2020 and the pan-European accounts receivable securitization facility was fully utilized at $166 million. The covenant test under the $2.0 billion ABL revolver is a coverage ratio which comes into effect only when availability, plus cash balances of the parent and guarantor subsidiaries under the facility, declines below $200 million, which is unlikely to occur in the near-term.

Important to Goodyear's liquidity profile is its ability to factor receivables. At March 31, 2020 the gross amount of receivables sold was $460 million. We consider this a potential funding risk if markets are not available to enter into further factoring arrangements.

The Ba2 rating on the secured second-lien term loan reflects the guarantees from Goodyear's material domestic subsidiaries, as well as a second claim the certain of Goodyear's North American assets (receivables, inventory, trademarks and some shareholdings) after the first lien asset backed revolver. Goodyear Europe B.V.'s Ba3 unsecured rating reflects the benefit of guarantees from Goodyear's material North American subsidiaries, in addition to the structural seniority of the issuer. There is a one-notch override down from the Loss Given Default model outcome, to consider the size and potential usage of the secured revolving credit facility at that entity. Goodyear's senior unsecured notes that are guaranteed are rated B2, while the notes without a guarantee are rated B3.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

A higher rating over the near term is unlikely. Over the long-term, a higher rating could result from sustained improving demand which supports widening profit margins and debt reduction. A higher rating could result from EBITA/interest approaching 3.0x, and debt/EBITDA approaching 3.0x.

A lower rating could result if the prospects for recovering industry conditions by year-end 2021 diminish or from increasing raw material costs which are not offset by improved product mix, pricing, or restructuring actions. EBITA margins expected to be maintained below 3% through year-end 2021, prospects for positive free cash flow insufficient to reduce debt/EBITDA below 6x, or EBITA/Interest above 2x by year-end 2021 could also result in a downgrade. Ratings pressure could also arise from a meaningful decline in the liquidity profile.

Goodyear's role in the automotive industry exposes the company to material environmental risks arising from increasing regulations on carbon emissions. As automotive manufacturers seek to introduce more electrified powertrains, traditional ICEs will become a smaller portion of the car park. Goodyear's products are generally agnostic to vehicle powertrain. Yet, vehicle electrification provides the opportunity to offer additional products to improve ride and fuel economy.

The principal methodology used in these ratings was the Automotive Supplier Methodology published in January 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1170606. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The Goodyear Tire & Rubber Company, based in Akron, OH, is one of the world's largest tire companies with 46 manufacturing facilities in 21 countries around the world. Revenues for the LTM period ending March 31, 2020 were approximately $14.2 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued [with/with no] amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Timothy L. Harrod
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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