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Rating Action:

Moody's assigns Ba2 rating to Goodyear's notes to be issued by GDTE; affirms Ba3 CFR

13 Apr 2011

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€505 million of first lien revolving credit facilities due 2012, Baa3 (LGD-1, 6%) -- be withdrawn upon replacement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
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Ba2 rating to Goodyear's notes to be issued by GDTE; affirms Ba3 CFR
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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