Goodyear Buys Turnaround Time With Secured Facilities

Goodyear Tire & Rubber Company's proposed refinancing will extend debt maturities, improve liquidity and provide a timeframe for turning around the sputtering North American Tire segment. The secured credit facilities have been assigned a prospective Ba2 rating by Moody's Investors Service, reflecting the favorable position created by collateral packages granted to lenders. "The company is moving from unsecured borrowing to collateral-base borrowing and that necessitates changes in its current ratings," said George Meyers, v.p. and senior credit officer at Moody's.

The senior unsecured debt rating has been moved to B2 from B1 reflecting the structural subordination due to the proposed new credit lines. A spokesman for Goodyear said the Moody's ratings is an accurate reflection of the terms of the proposed credit facilities. Commenting on the decision to secure the credit he said, "A series of actions were taken to improve our financial flexibility."

Meyers explained that the company has had some sub-par financial performance in recent years. Despite six out of seven business units demonstrating year-over-year improvement, the largest and most critical unit, North American Tire, continues to struggle. Higher replacement tire volumes, in conjunction with a more prudent pricing strategy and global product sourcing, will be critical to improving the company's overall financial performance in 2003 and beyond.

Goodyear is establishing three separate bank financing arrangements totaling $3.3 billion, each with largely separate collateral packages. A proposed $1.3 billion senior secured asset based lending program consists of a $500 million revolver and a $800 million term loan. The asset-based facility will replace a $700 million domestic accounts receivable securitization program set to mature in December. There is also $1.35 billion in senior secured U.S. bank facilities consisting of a $750 million revolver and a $600 million term loan, which both expire on April 30, 2005. The proposed line of credit will replace the existing $575 million unsecured revolver and $800 million unsecured term loan set to expire in August 2004 and March 2004, respectively. Finally, there is a $650 million European facility.