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DCR Maintains Goodyear Tire at 'A-'

4 February 1999

DCR Maintains Goodyear Tire at 'A-'

    CHICAGO, Feb. 3 -- Duff & Phelps Credit Rating Co. (DCR) is
maintaining the debt ratings of The Goodyear Tire & Rubber Company in light of
Goodyear's announcement that it will pay $936 million to enter into a global
alliance with Sumitomo Rubber Industries, Ltd., by forming a number of joint
ventures.  Goodyear's senior, unsecured debt is rated 'A-' (Single-A-Minus)
and its commercial paper is rated 'D-1-' (D-One-Minus).  Goodyear had
approximately $2.0 billion of debt at yearend 1998.
    Along with the significant cost synergies expected in purchasing,
manufacturing and distribution, the business combinations strategically
propel the partners' combined market share in Western Europe into a clear
second place, ahead of Continental and behind Michelin.  In Japan, Goodyear
will benefit from Sumitomo`s extensive access in selling original equipment
tires and rubber products to Japanese automakers, who worldwide control
approximately 28 percent of total vehicle production.
    Goodyear will also realize net incremental EBITDA and some operating
cashflow from the joint venture arrangements.  However, Goodyear will likely
need to finance a large portion of the $936 million cash payment with
incremental debt, as the high levels of non-alliance capital spending needed
to roll out its new manufacturing process technologies and to add chemicals
capacity are currently resulting in only moderate free cash flow.
    Goodyear's financial strategy has had a target for balance-sheet debt to
debt plus equity (capitalization) of roughly 30 percent with potential
temporary fluctuations for acquisitions.  The financing of the Sumitomo
alliance will probably push Goodyear's balance-sheet debt to capitalization
ratio upward to roughly 40 percent, and a rating concern is that it may take
Goodyear a number of years to return to the 30 percent range.   The ratings
also acknowledge Goodyear's significant off-balance-sheet operating leases and
sold receivables, which push this ratio up closer to 50 percent.
    While the debt ratings previously acknowledged that the fundamentals of
the global tire industry may trigger major consolidation and that there was
potential risk of acquisitions, the significant size of the incremental debt
will call for DCR to closely monitor the details of the alliance as well as
Goodyear's ongoing operating performance and financial planning.
Particularly, DCR will focus on the plans enacted by the new joint ventures to
achieve cost savings and growth synergies, Goodyear's progress in reversing a
recent increase in its working capital needs and the flexibility of Goodyear's
capital spending plans to respond to turbulence in regional economic
environments.