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Goodyear Tire & Rubber Company (The) -- Moody's confirms Goodyear's ratings with senior unsecured guaranteed at B2, senior secured at Ba2 and CFR at B1; outlook to stable

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Rating Action: Moody's confirms Goodyear's ratings with senior unsecured guaranteed at B2, senior secured at Ba2 and CFR at B1; outlook to stableGlobal Credit Research - 24 Mar 2021New York, March 24, 2021 -- Moody's Investors Service (Moody's) confirmed the ratings of The Goodyear Tire & Rubber Company (Goodyear), including the B1 corporate family rating (CFR), B1-PD probability of default rating, senior secured second-lien term loan rating of Ba2, senior unsecured guaranteed notes rating of B2, senior unsecured unguaranteed notes rating of B3 and Goodyear Europe B.V.'s senior unsecured guaranteed notes rating of Ba3. The Speculative Grade Liquidity rating was changed to SGL-2. The rating outlook was changed to stable from ratings under review.The rating action considers the pending acquisition of Cooper Tire & Rubber Company (Cooper Tire) which will result in a comprehensive product offering across the tire value spectrum with greater volumes creating the opportunity to drive manufacturing and distribution synergies, and the substantial amount of equity that Goodyear is including for the purchase. This action concludes the review for downgrade initiated on February 23, 2021 following Goodyear's announcement to acquire Cooper Tire.RATINGS RATIONALEGoodyear's ratings reflect its strong global position as a manufacturer of aftermarket and original equipment tires supported by a leading market share position in North America, good scale and growth in higher-margin 17-inch and larger tires. The combination with Cooper Tire strengthens Goodyear's US replacement tire position while also meaningfully boosting the original equipment tire business in China where demand is accelerating.Moody's believes management's projected cost synergies, one-time working capital cash savings and net present value of cash savings from accelerated utilization of tax attributes as a result of the acquisition are all largely attainable, and will help with the company's ongoing challenge to improve its cost structure and pay down debt. Tire volumes are expected to sharply rebound in 2021 following two years of contraction, leading to better cost absorption. More specifically, Goodyear should also benefit from the continued volume recovery in US replacement tires as automotive care centers reopen and customer traffic improves, namely with Walmart Inc. where Goodyear maintains high market share.The acquisition increases pro forma debt-to-EBITDA (including Moody's standard adjustments) towards 6x but should result in annual free cash flow of over $200 million for accelerated debt repayments. As a result, Moody's expects debt-to-EBITDA to fall towards 4x by year-end 2022. The EBITA margin is expected to rebound sharply in 2021 and resume growth in 2022 as continued cost savings and distribution synergies gain traction.The stable outlook reflects Moody's expectations for industry tire volumes to continue rebounding through 2021, leading to improved cost absorption and margins. The combined entity should generate strong cash flow sufficient to fund growth investments and debt repayment while maintaining a sizable cash position and modest reliance on revolving credit facilities.Goodyear's SGL-2 Speculative Grade Liquidity Rating is supported by Moody's expectation for maintenance of a robust cash position ($1.5 billion at December 31, 2020) and significant availability under various revolving credit facilities. At year-end 2020, the company had over $1.5 billion of availability (zero drawn) under its $2 billion asset-based lending facility (ABL) expiring 2025 and full availability under the E800 million revolving credit facility set to expire 2024. Moody's expects free cash flow, including Cooper Tire's accretive free cash flow profile, to comfortably exceed $200 million in 2021 even with higher growth investment in working capital and capital expenditures.Important to Goodyear's liquidity profile is its ability to factor receivables. At December 31, 2020 the gross amount of receivables sold was $451 million. Moody's considers this a potential funding risk if markets are not accessible for continued factoring arrangements.Moody's took the following actions:Confirmations:..Issuer: Goodyear Tire & Rubber Company (The)....LT Corporate Family Rating, Confirmed at B1.... Probability of Default Rating, Confirmed at B1-PD....Senior Secured Bank Credit Facility, Confirmed at Ba2 (LGD2)....Gtd. Senior Unsecured Regular Bond/Debenture, Confirmed at B2 (LGD4)....Senior Unsecured Regular Bond/Debenture, Confirmed at B3 (LGD6)..Issuer: Goodyear Europe B.V.....BACKED Senior Unsecured Regular Bond/Debenture, Confirmed at Ba3 (LGD2 from LGD3)Upgrades:..Issuer: Goodyear Tire & Rubber Company (The).... Speculative Grade Liquidity Rating, upgraded to SGL-2 from SGL-3Outlook Actions:..Issuer: Goodyear Tire & Rubber Company (The)....Outlook, Changed To Stable From Ratings Under Review..Issuer: Goodyear Europe B.V.....Outlook, Changed To Stable From Ratings Under ReviewThe Ba2 rating on the secured second-lien term loan reflects the guarantees from Goodyear's material domestic subsidiaries, as well as a second claim on certain Goodyear North American assets (receivables, inventory, trademarks and some shareholdings) after the first-lien ABL (unrated). Goodyear Europe B.V.'s Ba3 unsecured rating reflects structural seniority of the issuer along with the benefit of guarantees from Goodyear's material North American subsidiaries. This rating includes a one-notch override down from application of the LGD model to consider the likelihood of increased secured borrowings, including the E800 million revolving credit facility, at Goodyear Europe B.V. which would lower the recovery prospects for the unsecured notes.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded with improving margins, boosted by better than anticipated savings/synergies from the acquisition. The expectation that meaningful, positive free cash flow will be used for debt reduction such that debt-to-EBITDA falls to the mid-3x range or EBITA-to-interest eclipses 3x could also warrant positive rating action.Following the transaction close, important near-term factors to gauge how effectively the integration is tracking include the impact on supplier and customer relations as well as inventory management with incremental Cooper Tire volumes flowing through Goodyear's distribution channels. The combined entity's ability to effectively manage through, and offset, fluctuations in raw material costs will also be an important consideration. From a credit metrics perspective, ratings could be downgraded if the EBITA margin declines to the mid-5x range, free cash flow falls well shy of Moody's expected level or debt-to-EBITDA approaches 6x. EBITA-to-interest below 2.5x could also result in a downgrade. Ratings pressure could also arise from a meaningful decline in liquidity, including increased reliance on revolving credit facilities.Goodyear'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 the 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.The Goodyear Tire & Rubber Company is one of the largest tire manufacturers in the world. Revenues for the year ended December 31, 2020 were approximately $12 billion. Pro forma revenues including Cooper Tire are expected to be nearly $15 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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