Hard to Believe But Goodyear Credit Ratings Slashed to 'Junk'

January 18 2002 The London Financial Times New York bureau reported that

Goodyear Tire & Rubber, the world's biggest tyre manufacturer, on Friday joined a long line of fallen angels after its credit ratings were slashed to junk.

The tyre company's long-term corporate credit rating was lowered to BB+ from BBB by ratings agency Standard & Poors, which cited concerns over the highly-leveraged company's long-term profit potential. The downgrade will make it more expensive for the company to raise money. Moody's Investors Service currently rates Goodyear at Baa3, the lowest rung of investment grade.

Other fallen angels - companies that have been lowered to junk status from investment grade - over the past year have included retailer Saks, as well as Delta Air Lines and Lucent Technologies.

Goodyear said that it was "disappointed" with S&P's action and that it had plans in place to improve its profitability and cut its debt.

S&P said, however, that while actions taken to date by the company to bolster its liquidity and cash flow would create better credit protection measures over time, "the improvement is now expected to fall short of previously expected levels."

The capital intensive nature of Goodyear's business, constraints imposed by labor agreements and the prospect of ongoing difficult market conditions will hamper the company's debt reduction program, S&P said.

Goodyear took on around $900m in debt to complete an alliance with Sumitomo Rubber Industries in 1999 and since then its debt-to-capital ratio has been well above 50 per cent. S&P noted however that Goodyear is not expected to face liqudity issues, and that it is expected to remain in compliance with revised covenants on its credit agreements.