Approximately $6 billion of rated debt obligations affected
New York, April 13, 2011 -- Moody's Investors Service assigned a Ba2 rating to Goodyear Tire &
Rubber Company's ("Goodyear") new senior 250 million unsecured notes
to be issued by Goodyear Dunlop Tire Europe B.V. (GDTE).
Moody's also assigned a Baa3 rating to GDTE's amended and
extended first lien revolving credit facilities. The net proceeds
from the new unsecured notes will be used to repay borrowings under GDTE's
revolving credit facility and general corporate purposes. In a
related action, Moody's affirmed Goodyear's Corporate Family
Rating at Ba3 and other ratings as detailed below. The rating outlook
remains stable.
Ratings assigned:
Goodyear Dunlop Tires Europe B.V. and certain subsidiaries
Baa3 (LGD-1, 5%), 400 million of first
lien revolving credit facilities due April 2016;
Ba2 (LGD-2, 27%), 250 million of senior
unsecured notes due April 2019
Ratings affirmed:
Goodyear Tire & Rubber Company
Corporate Family Rating, Ba3;
Probability of Default Rating, Ba3;
SGL-2, Speculative Grade Liquidity rating
$1.5 billion first lien revolving credit facility due 2013,
Baa3 (LGD-1, 5%);
$1.2 billion second lien term loan due 2014, Ba1 (LGD-2,
16%);
10.50% unsecured notes due 2016, B1 (LGD-4,
66%);
8.75% senior unsecured guaranteed notes due 2020,
B1 (LGD-4, 66%);
8.25% senior unsecured guaranteed notes due 2020,
B1 (LGD-4, 66%);
7% senior notes due 2028, B2 (LGD-6, 96%)
(P)B1, guaranteed senior unsecured shelf
Goodyear Dunlop Tires Europe B.V. and certain subsidiaries
505 million of first lien revolving credit facilities due 2012,
Baa3 (LGD-1, 6%) -- be withdrawn upon replacement
RATINGS RATIONALE
The affirmation of Goodyear's Ba3 Corporate Family Rating reflects the
company's ability to maintain its competitive position within the global
tire industry while simultaneously taking actions to mitigate rising raw
material costs, primarily rubber. The company's brand name
presence, scale, position as one of three global automotive
tire manufacturers has supported the ability to maintain market share
as industry volumes improved in 2010. Goodyear also benefited from
improved product mix through the launch of 60 new products which include
increases in the number of high-value-added tires.
Restructuring actions initiated in 2009 along with pricing actions taken
in 2010 have also supported the company's improved performance in
2010 and resulted in a lower cash burn than previously anticipated by
Moody's and positions Goodyear to sustain further improvement in
credit metrics in 2011 despite increased raw material cost pressures.
For the fiscal year ending December 2010 Goodyear's EBIT/Interest (including
Moody's standard adjustments) was approximately 1.5x and Free Cash
Flow/Debt was approximately 2.8%.
On a consolidated basis, the new senior unsecured notes issued at
GDTE partially offset Goodyear's anticipated debt paydown of $350
million in principal amount of its outstanding 10.50% senior
notes. Yet, the completion of the combined transactions are
expected to result in a net improvement of overall interest costs.
Goodyear's stable rating outlook reflects our expectation that global
tire volumes will continue to recover in 2011 driven by higher replacement
and original equipment tire demand, despite near-term potential
market disruptions from the earthquake in Japan. Goodyear's operating
performance over the near-term should be supported by improving
product mix, restructuring initiatives taken in 2010, and
additional pricing actions taken in 2011. That said, Goodyear's
credit metrics are anticipated to remain in the low end of assigned rating
over the near-term, supported by a good liquidity profile,
as the company manages through ongoing raw material cost pressures.
The SGL-2 Speculative Grade Liquidity continues to be supported
by Goodyear's revolver availability and strong cash balances as
the company's free cash flow burn in 2010 was less than expected.
Global cash on hand at December 31, 2010 was $2.0
billion which includes about $188 million in Venezuela.
Further liquidity support is borrowing based availability of approximately
$1 billion after $474 million of outstanding letters of
credit under the $1.5 billion U.S. revolving
credit facility. While the company's Euro 505 million revolving
credit facility was undrawn as of December 31, 2010, the facility
matures in April 2012. This facility is expected to be refinanced
concurrent with the GDTE note offering. The Pan European accounts
receivable securitization facility was fully utilized, with $319
million outstanding. Over the near-term high raw material
costs and plant reinvestments to support growth in high value added tires
are anticipated to pressure free cash flow generation resulting in the
potential for a more modest reliance on the U.S. revolving
credit facility. 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 $150 million, 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 continue to improve, positioning
the company more solidly in the Ba3 rating. 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.
The last rating action for Goodyear was on August 10, 2010 when
the Corporate Family Rating was affirmed and the rating outlook changed
to stable.
The principal methodology used in rating Goodyear Tire & Rubber Company
was the Global Automotive Retailer Industry Methodology, published
December 2009. Other methodologies used include Loss Given Default
for Speculative Grade Issuers in the US, Canada, and EMEA,
published June 2009.
Goodyear Tire & Rubber Company, based in Akron, OH,
is one of the world's largest tire companies with 56 manufacturing facilities
in 22 countries around the world. Revenues in 2010 were approximately
$18.8 billion.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Timothy L. Harrod
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
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Moody's assigns Ba2 rating to Goodyear's notes to be issued by GDTE; affirms Ba3 CFR