FINDLAY, Ohio (Oct. 7) — Cooper Tire & Rubber Co. has been downgraded to "junk" credit rating status by Standard & Poor´s, which cited the tire maker's "poor near-term earnings and cash flow prospects."
A junk rating can make borrowing more expensive for a company. S&P noted Cooper has about $720 million in debt, and its rating outlook is negative. In the rating change, S&P lowered its corporate credit and senior unsecured ratings to a speculative-grade "BB+" from "BBB-."
"The rating actions result from the poor near-term earnings and cash flow prospects for the tire manufacturer, which will cause credit protection measures to be weaker than previously expected," S&P analyst Martin King said.
S&P said Cooper´s recent poor earnings are the result of several factors, including operating inefficiencies from shifting to higher-margin products domestically while increasing supply of economy tires from Asia; reduced unit sales in the passenger tire segment; high raw material costs, including a $31 million jump in the second quarter; start-up costs from a new tire plant in China; and a strike earlier this year in Texarkana, Ark., that reduced operating income by about $20 million in the first half of the year and may continue to depress operating income by $6 million to $7 million in the third quarter.
Pat Brown, vice president of global branding and communications, said Cooper is in a solid financial position with a "respectable" amount of cash.
She said the rating change reflects Cooper´s transitional period after selling Cooper-Standard Automotive. The company has not yet been able to reduce debt as much as hoped with cash from the sale, Brown added.