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Global Credit Research - 10 Aug 2010
Approximately $5.8 billion of rated debt affected
New York, August 10, 2010 -- Moody's Investors Service assigned a B1 rating to the Goodyear Tire &
Rubber Company's ("Goodyear") new $750 million guaranteed
senior unsecured notes. In a related action Moody's affirmed Goodyear's
other ratings, including: the Corporate Family and Probability
of Default ratings at Ba3; existing senior secured debt, guaranteed
senior debt, and unguaranteed senior debt at Baa3, B1,
and B2, respectively. The Speculative Grade Liquidity Rating
was raised to SGL-2 from SGL-3. The rating outlook
was changed to stable from negative.
The net proceeds from the $750 million of new guaranteed senior
unsecured notes, together with cash and cash equivalents and availability
under the senior secured credit facilities, will be used to:
redeem the $388 million 7.857% Notes due August 15,
2011, redeem the $325 million 8.625% Senior
Notes due December 1, 2011, pay certain make whole amounts
and redemption premiums under the respective notes and related fees and
expenses, and for general corporate purposes.
Goodyear's stable rating outlook reflects our expectation that global
tire volumes will continue to benefit from a recovery in 2010 from 2009
levels driven by higher replacement and original equipment tire demand.
In addition we expect Goodyear's operating performance over the
near-term to continue to benefit from restructuring actions taken
in 2009, improving product mix, and recent pricing actions.
Recent monthly passenger miles driven in the U.S. have demonstrated
year-over-year improvement and appear to be on a path to
surpass 2009 comparable figures. Further, higher levels of
passenger car original equipment tire demand in North America, Asia,
and South America, will benefit fixed cost absorption across Goodyear's
business. As a result, improved year-over-year
tire shipments experienced by Goodyear in the first half of 2010 are expected
to be sustained over the near-term. While Moody's
continues to expect Goodyear's credit metrics over the next two
quarters will be negatively affected by higher raw material costs,
the company's lower than expected cash burn for the first half of
2010 has positioned the company with a good liquidity profile to manage
through the second half of 2010 and into 2011. Goodyear's
credit metrics should improve to levels consistent with the assigned rating
over the intermediate term.
The stable outlook also incorporates a successful offering of the new
$750 million senior unsecured notes which will refinance debt maturities
coming due in 2011. With the 2011 maturities addressed, Moody's
expects Goodyear's good liquidity profile to provide operating flexibility
while managing likely raw material cost pressures over the intermediate
term. Goodyear's demonstrated ability to manage through a
difficult operating environment has supported access to the capital markets
in late 2009 and early 2010.
The affirmation of Goodyear's Ba3 Corporate Family Rating reflects the
company's competitive position within the global tire industry.
The company's scale, position as one of three global automotive
tire manufacturers, and global diversification with significant
brand name presence continue to be a strength. For the LTM period
ending June 30, 2010, Goodyear's EBIT/Interest (including
Moody's standard adjustments) was approximately 1.8x and
Free Cash Flow/Debt was approximately 10.6%. These
metrics reflect the company's progress in achieving cost savings
and the lower raw material costs in 2009, and recovering industry
volumes in the first half to 2010. Yet, Moody's expects
Goodyear's credit metrics in the second half of 2010 will be pressured
by higher raw material cost and a lagging recovery in Europe. Pricing
actions initiated by the company should partially mitigate the impact
of rising raw material cost.
The Speculative Grade Liquidity upgrade to SGL-2 from SGL-3
incorporates a lower than expected cash burn in the first half of 2010
which better positions the company to maintain a good liquidity profile
over the next twelve months. In addition, the announced unsecured
note offering is anticipated to address Goodyear's 2011 debt maturities.
Global cash on hand at June 30, 2010 was $1.7 billion
which includes about $157 million in Venezuela. In addition
the company maintained borrowing base availability of $931 million
under the $1.5 billion U.S. revolving credit
after LCs of $485 million. The Euro 505 million revolving
credit was undrawn as of June 30, 2010. The company's cash
and revolver availability are expected to be sufficient to preserve operating
flexibility over the near-term. The securitization facility
was fully utilized, with 328MM outstanding. Moody's
expects higher raw material pricing to pressure free cash flow generation
in the second half of 2010 resulting in the potential for a more modest
reliance on the revolving credit facilities over the near-term.
There is a coverage ratio covenant test under the $1.5 billion
revolver which comes into effect only when availability under the revolver,
plus cash balances, goes below $150MM, which is unlikely
to be activated in the near-term. Goodyear has the capacity
under the indentures for its unsecured obligations to pledge additional
assets (subject to the terms, limitations and exclusions provided
in the respective indentures). Should the permissible basket of
liens exceed the prescribed amount, Goodyear would be required to
ratably secure the unsecured notes and bonds issued under the indentures.
Upward rating migration is unlikely over the intermediate term as Goodyear's
credit metrics are expected to be at the low end of the Ba3 rating range.
The company's credit metrics are expected to reflect a gradual recovering
global economy somewhat offset by raw material cost pressure. However,
a positive rating outlook or rating change could result from a de-leveraging
of Goodyear's balance sheet, or if global economic conditions
improve sufficiently to positively impact demand in the company's global
markets resulting in EBIT/interest being sustained above 2.0 times,
and debt/EBITDA falling below 4 times while maintaining adequate liquidity.
A lower rating or outlook could develop if replacement tire demand in
North America and abroad does not rebound as expected over the intermediate-term
with an inability by Goodyear to offset this pressure through additional
restructuring savings. Ratings pressure could also arise from the
inability of the company to sufficiently offset increases in raw material
costs, or a substantial decrease in its liquidity profile.
B1 (LGD4, 65%), $750 million of guaranteed senior
(P)B1, guaranteed senior unsecured shelf
Speculative Grade Liquidity rating, to SGL-2 from SGL-3
Goodyear Tire & Rubber Company
Corporate Family Rating, Ba3;
Probability of Default Rating, Ba3;
$1.5 billion first lien revolving credit facility due 2013,
Baa3 (LGD-1, 6%);
$1.2 billion second lien term loan due 2014, Ba1 (LGD-2,
9% senior unsecured notes due 2015, B1 (LGD-4,
10.5% discounted unsecured notes due 2016, B1 (LGD-4,
8 5/8 % senior unsecured notes due 2011, B1 (LGD-4,
65%) -- rating will be withdrawn upon repayment;
8.75% senior unsecured guaranteed notes due 2020,
B1 (LGD-4, 65%);
7 6/7% senior notes due 2011, B2 (LGD-6, 96%)
-- rating will be withdrawn upon repayment;
7% senior notes due 2028, B2 (LGD-6, 96%)
Goodyear Dunlop Tires Europe B.V. and certain subsidiaries
505 million of first lien revolving credit facilities due 2012,
Baa3 (LGD-1, 6%)
The last rating action for Goodyear was on February 22, 2010 when
ratings were assigned to new unsecured notes and the Corporate Family
Rating was affirmed.
The principal methodology used in rating Goodyear is Moody's Global Auto
Supplier Industry, published in January 2009 and available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
Goodyear Tire & Rubber Company, based in Akron, OH,
is one of the world's largest tire companies with 57 manufacturing facilities
in 23 countries around the world. Revenues in 2009 were approximately
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Timothy L. Harrod
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B1 to Goodyear's new senior unsecured notes, outlook changed to stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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