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Rating Action:

Moody's revises Goodyear's outlook to negative, CFR affirmed at Ba2

30 Oct 2018

Approximately $3.7 billion of Rated Debt Affected

New York, October 30, 2018 -- Moody's Investors Service revised the rating outlook of The Goodyear Tire & Rubber Company ("Goodyear") to negative from stable. In a related action Moody's affirmed Goodyear's other ratings including Corporate Family and Probability of Default rating at Ba2, Ba2-PD, respectively; senior secured second-lien term loan, at Baa3; senior unsecured guaranteed notes at Ba3, senior unsecured unguaranteed notes at B1; and on Goodyear Dunlop Tires Europe B.V.'s senior unsecured guaranteed notes at Ba1. The Speculative Grade Liquidity Rating is downgraded to SGL-2 from SGL-1.

Outlook Actions:

Issuer: The Goodyear Tire & Rubber Company:

Outlook changed To Negative, from Stable

Issuer: Goodyear Dunlop Tires Europe B.V.

Outlook changed To Negative, from Stable

Ratings downgraded:

Issuer: The Goodyear Tire & Rubber Company

Speculative Grade Liquidity Rating, to SGL-2 from SGL-1

Ratings Affirmed:

Issuer: The Goodyear Tire & Rubber Company:

Corporate Family Rating, affirmed Ba2;

Probability of Default Rating, affirmed Ba2-PD;

$400 million senior secured second lien term loan due 2025, affirmed Baa3 (LGD2);

8.75% $282 million senior unsecured guaranteed notes due 2020, affirmed Ba3 (LGD4);

5.125% $1 billion senior unsecured guaranteed notes due 2023, affirmed Ba3 (LGD4);

4.875% $700 million senior unsecured guaranteed notes due 2027, affirmed Ba3(LGD4);

5.0% $900 million senior unsecured guaranteed notes due 2026, affirmed Ba3 (LGD4);

7.0% $150 million senior unsecured unguaranteed notes due 2028, affirmed B1 (LGD6);

Issuer: Goodyear Dunlop Tires Europe B.V.

3.75% EUR250 million senior unsecured Euro notes due 2023, affirmed Ba1 (LGD2).

RATINGS RATIONALE

The revision of Goodyear's rating outlook to negative incorporates Moody's view that raw material costs for the company will remain elevated over the intermediate term. This cost pressure along with Moody's view of relatively flat global demand for aftermarket tires over the next year are expected to be headwinds over the intermediate-term to Goodyear's ability to de-lever its balance sheet. For the LTM period-ending September 30, 2018, Goodyear's debt/EBITDA approximated 3.9x. Moody's expects Goodyear's debt/EBITDA leverage will remain above the previously stated downward rating trigger over the next several quarters. Yet, Moody's believes the high leverage is driven primarily by industry factors rather than a weakened competitive profile. These industry factors relate to elevated raw material costs for carbon black, synthetic rubber, and other materials, and the foreign exchange impact on their pricing. These pressures are anticipated to remain at elevated levels over the intermediate-term with world-wide demand for these raw materials remaining strong from the tire and other chemical related industries. Additionally, the supply growth for these petroleum based raw materials is expected to be modest over the near-term due to tighter environmental regulations in Asia and only moderate pricing for petroleum oil.

The affirmation of Goodyear's Ba2 Corporate Family Ratings reflects Moody's belief that the company will maintain its strong global competitive position over the intermediate-term and should be able to recover some amounts of the higher raw material costs over the intermediate-term. Positively, over the recent quarter, the company has demonstrated both volume and pricing improvements in its key Americas and European markets. In addition, Goodyear reported volume growth in excess of market trends for 17" and greater tires in its Americas and European regions during 2018. That said, the tire industry is anticipated to experience volume headwinds over the near-term due to emission testing issues on new vehicles in Europe, and weakening near-term automotive demand in Asia.

The downgrade of Goodyear's Speculative Grade Liquidity Rating to SGL 2 incorporates Moody's of weaken cash balances, given industry conditions, and anticipated weak cash flow generations over the next 12-15 months driven by high raw material costs. As of September 30, 2018, Goodyear's global cash on hand approximated $962 million (including $66 million of restricted cash). The $2.0 billion ABL revolving credit facility had $325 million of borrowings and $37 million of letters of credit outstanding and had $1.3 billion available after considering the borrowing base. The facility matures in 2021. Goodyear's Euro 550 million revolving credit facility had $360 million of borrowings as of September 30, 2018 and the Pan European accounts receivable securitization facility was fully utilized at $221 million. We expect Goodyear to generate only nominal positive free cash flow over the next 12-15 months due to headwinds from raw material costs. There is a coverage ratio covenant test under the $2.0 billion ABL revolver which comes into effect only when availability, plus cash balances of the parent and guarantor subsidiaries under the facility, goes below $200 million, which is unlikely to be occur in the near-term. While free cash flow expectation is anticipated to be much weaker than in in prior years, cash balances and anticipated revolver availability continue to support a good liquidity profile. Goodyear has the capacity under its senior unsecured indentures to pledge additional assets (subject to the terms, limitations and exclusions provided in the respective indentures). Should the permissible liens exceed the prescribed amount, Goodyear would be required to ratably secure the unsecured notes issued under the indentures.

A growing importance to Goodyear's liquidity profile is its ability to factor receivables. At September 30, 2018 the gross amount of receivables sold was $540 million. Accounts receivable factoring has gradually grown from about $243 million for fiscal 2012. While we recognize this has been an ongoing practice, we also consider this as a potential funding risk if markets are not available to enter into further factoring arrangements.

A higher rating over the near term is unlikely. Over the long-term, a higher rating could result from sustained improving demand which supports widening profit margins and debt reduction. A higher rating could result from EBITA/interest at or above 4.0x, and debt/EBITDA at or about 2.0x while maintaining at least a good liquidity profile.

A lower rating could result if industry conditions deteriorate through weakening volume trends, competitive pressures, or increasing raw material costs which are not offset by improved product mix, pricing, or restructuring actions. EBITA margins expected to approach 5% on a sustained basis, the inability to generate positive free cash flow sufficient to maintain debt/EBITDA below 3x, or EBITA/Interest below 3x could also result in a downgrade. Ratings pressure could also arise from a meaningful decline in the liquidity profile.

The principal methodology used in these ratings was the Global Automotive Supplier Industry published in June 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The Goodyear Tire & Rubber Company, based in Akron, OH, is one of the world's largest tire companies with 48 manufacturing facilities in 22 countries around the world. Revenues for the LTM period ending September 30 were approximately $15.7 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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

No Related Data.
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