Goodyear's Problems Persist; Bluewater MeasuresWeaken

The Goodyear Tire & Rubber Co. 's struggle to turn around its unprofitable North American tire business and the expectation that credit measures will remain weak through the end of 2004 have led Moody's Investors Service to downgrade the company's debt. Goodyear's $1.3 billion asset-based senior secured facility and $1.35 billion senior secured bank revolver and term loan were downgraded to Ba3 from Ba2.

Moody's notes that "profitability remains elusive" at Goodyear's North American tire business despite gains in replacement tire volumes and Goodyear and Dunlop brands, as well as signs of improved revenue per tire. The company has been impacted by higher raw material and energy costs and weaknesses in its private and custom brands, which offset margin improvements. Moreover, sizable cash contributions to Goodyear's underfunded pension plans, other post retirement benefit expenses and potential calls on the company's cash flow will limit improvements in debt protection measures and debt reduction.

On the positive side, the ratings reflect an improvement in Goodyear's other business units and the company's favorable new labor contract. "Six or seven of our businesses are still doing real well for us," noted a Goodyear spokesman. The company restructured its debt last April, gaining the benefits of extended debt maturities and improved liquidity. Other efforts to improve market share and tire-selling practices as well as reduce operating costs and contain capital expenditures should moderately improve Goodyear's credit metrics in 2004. The spokesman commented that Moody's report was disappointing, but noted that many of the points addressed are ones that the company has identified. "We have been taking significant steps to reduce our cost structure," noted the spokesman. The company is planning $1-1.5 billion in cost reductions by the end of 2005.

* Standard & Poor's has revised the outlook on Netherlands-based oil services company Aurelia Energy and its subsidiary Bluewater to negative from stable with concerns over Bluewater's failure to improve its credit protection measures in the third quarter. S&P rates Bluewater's seven-year revolver at BB. The loan will total $480 million in January. The credit is guaranteed by Aurelia and backed by Bluewater's fleet of vessels. Net debt-to-EBITDA at Bluewater is expected to be five times for the full 2003 and S&P notes that Bluewater's minimum rolling 12-month EBITDA-to-interest covenant of 2.5 times is "tight but manageable." The outlook change also incorporates the uncertainty of the timing of operating earnings recovery and significant reconstructing risk in 2004.