NEW YORK—Moody's Investors Service Inc. has downgraded the rating on a number of Goodyear commercial loans and notes, based on its view that Goodyear's actions to mitigate ongoing elevated raw materials costs don't take into account other industry pressures on margins.
In a prepared statement, Goodyear said: "This action was not unexpected, given the recent raw-material cycle affecting the global tire industry, weakening global OE demand and a challenging macroeconomic environment in China.
"The action is not expected to have a significant impact on our business or financial position. We remain focused on strengthening our balance sheet by managing our debt and increasing our earnings, while positioning the company for the long term."
Moody's downgrades for Goodyear include:
- Probability of Default Rating—downgraded to Ba3-PD from Ba2-PD;
- Corporate Family Rating—to Ba3 from Ba2;
- Senior Secured Bank Credit Facility—to Ba1 (LGD2) from Baa3 (LGD2);
- Senior Unsecured Regular Bond/Debenture—to B2 (LGD6) from B1 (LGD6);
- GTD Senior Unsecured Regular Bond/Debenture—to B1 (LGD4) from Ba3 (LGD4); and
- Speculative Grade Liquidity Rating—to SGL-3 from SGL-2
In addition, Moody's downgraded a Senior Unsecured Regular Bond/Debenture by Goodyear Europe B.V. to Ba2 (LGD2) from Ba1 (LGD2).
In its commentary on its actions, Moody's cited as positive Goodyear's recent pricing actions, rationalization initiatives in Germany and other cost savings programs initiated to help mitigate ongoing elevated raw material cost pressures could be effective over the longer term. These actions collectively could help offset roughly $300 million in materials-costs headwinds Goodyear is anticipating.
At the same, however, Moody's said these actions are "unlikely to restore Debt/EBITDA to below 3x, or EBITA/Interest to above 3x over the intermediate-term" and said additional actions will be need to restore profits to levels experienced in 2016.
Goodyear's EBITDA has deteriorated by approximately $475 million (as adjusted by Moody's) from year-end 2016 to year-end 2018.
There are other industry pressures, Moody's said—including the slowdown in global automotive original equipment manufacturer sales and industry expectations of "flattish" replacement tire volumes in the U.S.—that Goodyear needs to consider.