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Global Credit Research - 22 Feb 2011
Approximately $290 million of rated obligations
New York, February 22, 2011 -- Moody's Investors Service raised Cooper Tire & Rubber Company's ("Cooper
Tire") Corporate Family and Probability of Default Ratings to B1 from
B2. In a related action the ratings of the company's unsecured
notes were raised to B2 from B3. The company's Speculative Grade
Liquidity Rating was raised to SGL-2. The rating outlook
Corporate Family Rating, to B1 from B2;
Probability of Default, to B1 from B2;
Senior unsecured Notes, to B2 (LGD4, 63%) from B3 (LGD4,
Shelf filing for unsecured notes, to (P)B2 (LGD4, 63%)
from (P)B3 (LGD4, 64%);
Speculative Grade Liquidity Rating, to SGL-2 from SGL-3;
The B1 Corporate Family Rating balances Cooper Tire's demonstrated improvement
in credit metrics over recent quarters against ongoing industry risks
of increasing raw material costs and the potential for an increasingly
competitive environment. Cooper Tire's improving operating
performance has been supported by pent up replacement tire demand and
increasing passenger car miles-driven. Restructuring actions,
including the closure of the company's Albany, Georgia plant
and workforce reductions in Europe have also supported improved profitability.
Cooper Tire's LTM EBIT/interest expense (including Moody's standard adjustments)
as of September 30, 2010 was about 3.4x and free cash flow/debt
approximated 11.5%. While these metrics are somewhat
strong for the B1 rating, Moody's notes that the company could
face headwinds from the continuing trend of rising energy and raw material
costs, including rubber and synthetic rubber. Moreover,
duties on imported tires which were assessed beginning in 2009 are slated
to decrease over a three year period and fully expire by 2012.
As a result, domestic tire makers, including Cooper Tire,
are likely to face increased competitive pressures which could offset
the recent success they have enjoyed in assessing price increases to offset
material cost increases. The ratings accommodate some potential
for these risks to curtail margins over the intermediate term, but
anticipate that Cooper Tire will maintain financial metrics that support
the B1 ratings.
The stable rating outlook incorporates Moody's view that Cooper Tire should
continue to benefit from expected growth in tire demand and its well established
position in the North American tire industry. However, the
ability of the company to continue to implement pricing actions sufficient
to offset rising raw material costs is expected to be a risk along with
the potential for increased competition from larger industry participants.
Cooper Tire's Speculative Grade Liquidity rating of SGL-2 indicates
a good liquidity profile over the near-term supported by cash balances
and availability under the company's ABL revolving credit facility.
Cash balances at September 30, 2010 approximated $347 million.
The company maintains a $200 million asset based revolving credit
facility that is governed by a borrowing base formula on receivables and
inventory, and a $125 million accounts receivable securitization
facility. These lines were undrawn as of September 30, 2010.
However, Moody's notes that the accounts receivable securitization
matures in August 2011 and is not viewed as a long term source of liquidity
for rating purposes. The asset based revolving credit facility
matures in November 2012 and does not have material financial maintenance
covenants. Expected tire demand and ongoing pricing actions are
anticipated to contribute to Cooper Tire's positive free cash flow
over the near-term, after capital expenditures and dividends.
While Copper Tire's short-term debt related to its Asian
joint venture operations requires periodic refinancing, this debt
has historically has been financed locally and is expected to continue
to follow this pattern. The company is also exposed to a put option
related to its Cooper Chengshan Tire operation. The joint venture
partner could put its interest to Cooper Tire, valued at approximately
$45 million under a put option that expires in December 2011.
Despite these potential liquidity calls, Moody's believes
that Cooper maintains good financial resources from existing cash balances,
free cash flow generation, and committed borrowing availability
to meet any potential needs.
Cooper Tire's revolving credit facility is not rated.
The last rating action was on January 11, 2010 when the Corporate
Family Rating was raised to B2.
The principal methodologies used in this rating were Global Automotive
Supplier Industry published in January 2009, and Loss Given Default
for Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
Cooper Tire & Rubber Company, headquartered in Findlay,
OH, is the fourth largest tire manufacturer in North America and
is focused on the replacement markets for passenger cars and light and
medium duty trucks. Revenues in FY 2009 were approximately $2.9
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
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
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.
Timothy L. Harrod
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's raises Cooper Tire's ratings, Corporate Family at B1, stable outlook
250 Greenwich Street
New York, NY 10007
No Related Data.
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