Approximately $117 million of rated debt affected
New York, June 22, 2020 -- Moody's Investors Service ("Moody's") confirmed the ratings of Cooper
Tire & Rubber Company (Cooper Tire) with the Corporate Family Rating
(CFR) and Probability of Default Rating, at Ba3 and Ba3-PD,
respectively; and senior unsecured rating at B1. The Speculative
Grade Liquidity Rating is revised to SGL-2 from SGL-3.
The outlook is stable. This action concludes the review for downgrade
initiated on March 26, 2020.
Confirmations:
..Issuer: Cooper Tire & Rubber Company
.... Corporate Family Rating, Confirmed
at Ba3
.... Probability of Default Rating,
Confirmed at Ba3-PD
....Senior Unsecured Regular Bond/Debenture,
Confirmed at B1 (LGD5)
Upgrades:
..Issuer: Cooper Tire & Rubber Company
.... Speculative Grade Liquidity Rating,
Upgraded to SGL-2 from SGL-3
Outlook Actions:
..Issuer: Cooper Tire & Rubber Company
....Outlook, Changed To Stable From
Rating Under Review
RATINGS RATIONALE
The confirmation of Cooper Tire's ratings, including the Ba3 CFR,
reflects the company's major market position as the 5th largest
tire manufacturer in the US and record of moderate debt leverage going
into the recession. Cooper-Tire's debt/EBITDA as of
March 31, 2020 was 2.2x (inclusive of Moody's adjustments)
including the $250 million of borrowings under the revolving credit
agreement to support liquidity. Excluding the revolver drawdown,
pro forma debt/EBITDA was 1.5x. The company's debt
leverage will deteriorate over the coming quarters with the gradual recovery
of the manufacturing operations before improving in the fourth quarter
of 2020. Leverage should further improve into 2021 with demand
for aftermarket tires. Cooper Tire also has begun shifting production
of truck and bus radial tires to Vietnam through a joint venture with
Sailun Vietnam Co., Ltd. This action should continue
to help alleviate profit pressures from tariffs in 2020.
Similar to other auto parts suppliers, management has taken steps
to help mitigate lost volumes from the impact of the coronavirus pandemic
including capital expenditure reductions, temporary salary reductions,
reduced discretionary spending, and improved working capital management.
Moody's expects Cooper Tire's use of last-in-first
out inventory accounting will also help mitigate the impact of lower volumes
on the company's profit levels. The drop in petroleum and
related raw material costs is expected to be reflected in the company's
cost of goods sold. Further, Moody's believes that
consumers are likely to use their vehicles more as social distancing policies
are eased, rather than travel in planes, trains, and
busses. This trend should be supportive of aftermarket tire demand.
The stable outlook reflects Moody's belief that Cooper Tire's
strong cash balances supports operating flexibility enabling the company
to manage operations as consumer demand for aftermarket tires gradually
recovers along with increasing production at Cooper Tire's manufacturing
operations.
Cooper Tire's SGL-2 Speculative Grade Liquidity Rating reflects
the expectation of a good liquidity profile through into next year supported
by cash and the expectation of positive free cash flow (cash from operations
less CAPEX less dividends). Free cash flow to debt should be in
the double digit range for 2020. Cash and cash equivalents were
$433 million as of March 31, 2020. Availability under
the $500 million revolving credit facility was about $248.7
million after $250 million of borrowings and $1.3
million of outstanding letters of credit. The facility matures
in June 2024. While Moody's expects positive full year free
cash flow for 2020, second quarter cash flow will be negative.
Free cash flow for the fourth quarter 2020 should be strongly positive,
reflecting normal industry seasonality. The revolving credit facility
contains net leverage ratio and interest coverage ratio financial covenants
which are expected to have sufficient cushion through over the next 4
quarters to support operating flexibility.
Cooper Tire also maintains a $150 million accounts receivable securitization
facility which matures in February 2021. We estimate availability
under this facility was about $80 million at March 31, 2020.
In the event this facility is not renewed Cooper Tire would have to rely
on the revolving credit facility to fund its growth in receivable balances.
Auto parts suppliers face material credit risk from carbon transition
as the automotive industry comes under increasing pressure to accelerate
vehicle electrification. Auto parts suppliers risk exposure to
manufacturers whose vehicle mix is not aligned with regulatory requirements
or consumer clean-air preferences. Cooper Tire's products
are primarily supplied to the automotive aftermarket and are generally
agnostic to vehicle powertrain. However, as electrified vehicle
specifications differ from internal combustion engines, Cooper Tire
must continue to develop new tire specifications to meet new vehicle requirements.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Cooper Tire's ratings could be upgraded over the intermediate-term
if its financial policy remains balanced among shareholder returns,
capital investments to support organic growth (notably in high valued
tires) and acquisitions. Cooper Tire must also demonstrate the
ability of its operations to support and improve credit metrics on a sustained
basis without the impact of lower raw material costs.
Cooper Tire's rating could be downgraded if Moody's believes Cooper Tire's
EBITA margin will be sustained below the high single digits level,
EBITA/interest sustained below 4.5x, debt/EBITDA approaching
high 2x, or the expectation of negative free cash flow though the
second half of 2021. Also, a major consideration for a rating
downgrade also would include, in Moody's view, a material
change in the company's financial policies towards debt financed acquisitions,
increasing shareholder returns, or a change in the company's competitive
profile.
The principal methodology used in these ratings was 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.
Cooper Tire & Rubber Company (Cooper Tire), headquartered in
Findlay, Ohio, is one of the largest tire manufacturers in
North America and is focused on the replacement markets for passenger
cars and light and medium duty trucks. Revenues for the LTM period
ending March 31, 2020 were $2.7 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 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
