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Cooper Tire & Rubber Company -- Moody's confirms Cooper Tire's Ba3 CFR, senior unsecured notes remain under review for downgrade

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Rating Action: Moody's confirms Cooper Tire's Ba3 CFR, senior unsecured notes remain under review for downgradeGlobal Credit Research - 25 Mar 2021New York, March 25, 2021 -- Moody's Investors Service (Moody's) confirmed the Ba3 corporate family rating (CFR) and the Ba3-PD Probability of Default rating of Cooper Tire & Rubber Company (Cooper Tire) and left the B1 senior unsecured notes under review for downgrade. The SGL-2 Speculative Grade Liquidity rating is unchanged.Cooper Tire is expected to be acquired by The Goodyear Tire & Rubber Company (Goodyear), with a closing targeted for the second half of 2021. Upon closing the majority of Cooper Tire's debt will be repaid except for Cooper Tire's senior unsecured notes - Moody's expects to withdraw all ratings on the debt that is repaid. The senior unsecured notes are expected to remain part of the consolidated debt within the Goodyear group. Depending on whether Goodyear fully assumes the Cooper Tire debt and the type of support provided, the Cooper Tire debt could rank pari passu with the Goodyear senior unsecured unguaranteed notes which could imply a two-notch downgrade from the existing B1 rating of the Cooper Tire senior unsecured notes.RATINGS RATIONALECooper Tire's ratings reflect a strong market position in the US along with a solid and growing presence in China, a conservative balance sheet and good track record of positive free cash flow. The operating margin expanded in 2020 even during the pandemic-driven slowdown after two weak years and should maintain momentum as tire volumes are expected to recover through 2021. Debt-to-EBITDA at December 31, 2020 was 1.5x using Moody's standard adjustments while free cash flow reached a record level at nearly $300 million.The rating under review reflects uncertainty on Goodyear's plan for Cooper Tire's unsecured notes. In the event the debt is repaid at closing, Moody's would withdraw the rating. To the extent Cooper Tire's debt is assumed or remains intact, Cooper Tire's ratings would depend on the type of support provided by Goodyear and/or the sufficiency of information for monitoring the Cooper Tire rating.Cooper Tire's SGL-2 Speculative Grade Liquidity Rating is supported by Moody's expectation that the company will maintain a sizable cash balance (over $600 million at December 31, 2020) to go along with free cash flow that is consistent with prior year levels (excluding the 2020 elevated level that benefited from the large working capital unwind). December 2020 availability under the $500 million revolving credit facility set to expire June 2024 was over $460 million after deducting posted letters of credit. The company also maintains a $100 million accounts receivable securitization facility which expires December 2022. Moody's estimates availability under this facility was just over $80 million at December 31, 2020. In the event this facility is not renewed Cooper Tire would have to rely on the revolving credit facility to fund its growth in receivable balances.Issuer: Cooper Tire & Rubber Company- Corporate Family Rating, confirmed at Ba3- Probability of Default Rating, confirmed at Ba3-PD- Senior Unsecured Regular Bond/Debenture, remains unchanged at B1 (LGD5) on Review for Downgrade- Speculative Grade Liquidity Rating of SGL-2 unchanged- Outlook, Ratings Under ReviewFACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings are unlikely to be upgraded over the near term given the pending acquisition by Goodyear.The ratings could be downgraded if Moody's believes the EBITA margin will be sustained below the high-single digits, EBITA-to-interest will remain below 4.5x or if debt-to-EBITDA approaches the high-2x range.Cooper Tire's role within the automotive industry exposes the company to material environmental risks arising from increasing regulations on carbon emissions. As automotive manufacturers seek to introduce more electrified powertrains, traditional internal combustion engines will become a smaller portion of the car parc. Electric and battery electric vehicles are heavier, requiring tires to handle the increase in weight while tasking tire manufacturers to conserve raw materials with greater durability.The principal methodology used in these ratings was Automotive Supplier Methodology published in January 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1170606 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Cooper Tire & Rubber Company is a leading tire manufacturer in North America and is focused on the replacement market for passenger cars and light and medium-duty trucks. Revenues for the year ended December 31, 2020 were approximately $2.5 billion.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Eric Greaser Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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