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Akron tire maker can use funds for 'general corporate purposes'
By Jim Mackinnon
Beacon Journal business writer
POSTED: 07:58 p.m. EDT, May 07, 2009
So, what is Goodyear going to do with an extra $500 million or so in its coffers?
The money, from a $1 billion bond issue the Akron tire maker announced late Wednesday, will go to ''general corporate purposes,'' according to spokesman Keith Price.
The hundreds of millions of dollars may be used for normal expenses including making pension payments, rebuilding inventories when the economy improves, and perhaps as an extra source of cash if contract negotiations don't go well this summer with the United Steelworkers, said industry analysts.
Goodyear Tire & Rubber Co. on Tuesday initially announced it was going to sell $500 million in senior unsecured notes and use the proceeds, along with cash, to pay off $500 million in other notes due Dec. 1.
But the positive response to the offering — the seven-year notes sell at a discount and pay 10.5 percent interest for a return of 11.375 percent — led company executives to double the size to $1 billion.
And that means Goodyear might have about $500 million extra to put to use.
Goodyear isn't saying what its plans are beyond the ''general corporate purposes'' statement.
Saul Ludwig, industry analyst with KeyBanc Capital Markets, said he long felt Goodyear needed to raise $1 billion.
''The only surprise was the timing,'' he said. ''In the capital markets, you raise the money when the opportunity is there.''
Goodyear can use the money in myriad ways, Ludwig said.
For one, Goodyear is faced with having to put about $350 million into pensions this year and more than $500 million next year, he said.
In addition, company executives have previously announced plans to take out of global production between 15 million and 25 million units, meaning likely plant closures. Goodyear will have severance costs related to the production cuts, Ludwig said.
And while Goodyear has been cutting inventory, it will need to spend money to rebuild, ''to fill up the bins again,'' when the economy turns and tire sales increase, Ludwig said.
Shelly Lombard, credit analyst with firm Gimme Credit, said in a note to clients on Thursday that the $1 billion offering is a good move.
''It made sense for Goodyear to take the money while the market was willing to give it, especially since the capital markets could change on a dime and since this year's [earnings before taxes] won't cover the company's cash needs, making liquidity precious,'' Lombard wrote.
Lombard said she likes Goodyear's long-term prospects.
But the company in the near term is under pressure from weak demand for replacement and original equipment tires because consumers are driving fewer miles and delaying tire and new-vehicle purchases, she said.
Lombard said in a telephone interview that while Goodyear has cash needs, the company is ''nowhere near bankruptcy.''
Companies are always looking for extra liquidity, Lombard said.
''Goodyear is basically taking the money when it is available,'' he said. ''You would be stupid not to take it.''
The money left over from paying off the $500 million due in December can have multiple uses, including having extra cash on hand in the unlikely event upcoming contract negotiations in June with the USW sour, Lombard said. An 86-day-long USW strike in late 2006 during the previous round of negotiations cost Goodyear hundreds of millions of dollars.
Ludwig said he doubts Goodyear is anticipating labor strife later this year and would put the money in a so-called war chest. Goodyear and the other two large tire makers in the United States, Bridgestone and Michelin, have been working cooperatively with the union since the last contract was approved, he said.
''There seems to be a positive spirit of cooperation,'' Ludwig said.
Standard & Poor's Ratings Services rated the $1 billion in Goodyear notes at ''B+''. Standard & Poor's rates Goodyear's overall credit at BB-/Negative.
Moody's Investor Services rated the Goodyear notes at ''B1.''
Goodyear shares fell $1.35 to $12.16. Shares are up 103.7 percent since Jan .1 and are down 57.2 percent from a year ago.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.
So, what is Goodyear going to do with an extra $500 million or so in its coffers?
The money, from a $1 billion bond issue the Akron tire maker announced late Wednesday, will go to ''general corporate purposes,'' according to spokesman Keith Price.
The hundreds of millions of dollars may be used for normal expenses including making pension payments, rebuilding inventories when the economy improves, and perhaps as an extra source of cash if contract negotiations don't go well this summer with the United Steelworkers, said industry analysts.
Goodyear Tire & Rubber Co. on Tuesday initially announced it was going to sell $500 million in senior unsecured notes and use the proceeds, along with cash, to pay off $500 million in other notes due Dec. 1.
But the positive response to the offering — the seven-year notes sell at a discount and pay 10.5 percent interest for a return of 11.375 percent — led company executives to double the size to $1 billion.
And that means Goodyear might have about $500 million extra to put to use.
Goodyear isn't saying what its plans are beyond the ''general corporate purposes'' statement.
Saul Ludwig, industry analyst with KeyBanc Capital Markets, said he long felt Goodyear needed to raise $1 billion.
''The only surprise was the timing,'' he said. ''In the capital markets, you raise the money when the opportunity is there.''
Goodyear can use the money in myriad ways, Ludwig said.
For one, Goodyear is faced with having to put about $350 million into pensions this year and more than $500 million next year, he said.
In addition, company executives have previously announced plans to take out of global production between 15 million and 25 million units, meaning likely plant closures. Goodyear will have severance costs related to the production cuts, Ludwig said.
And while Goodyear has been cutting inventory, it will need to spend money to rebuild, ''to fill up the bins again,'' when the economy turns and tire sales increase, Ludwig said.
Shelly Lombard, credit analyst with firm Gimme Credit, said in a note to clients on Thursday that the $1 billion offering is a good move.
''It made sense for Goodyear to take the money while the market was willing to give it, especially since the capital markets could change on a dime and since this year's [earnings before taxes] won't cover the company's cash needs, making liquidity precious,'' Lombard wrote.
Lombard said she likes Goodyear's long-term prospects.
But the company in the near term is under pressure from weak demand for replacement and original equipment tires because consumers are driving fewer miles and delaying tire and new-vehicle purchases, she said.
Lombard said in a telephone interview that while Goodyear has cash needs, the company is ''nowhere near bankruptcy.''
Companies are always looking for extra liquidity, Lombard said.
''Goodyear is basically taking the money when it is available,'' he said. ''You would be stupid not to take it.''
The money left over from paying off the $500 million due in December can have multiple uses, including having extra cash on hand in the unlikely event upcoming contract negotiations in June with the USW sour, Lombard said. An 86-day-long USW strike in late 2006 during the previous round of negotiations cost Goodyear hundreds of millions of dollars.
Ludwig said he doubts Goodyear is anticipating labor strife later this year and would put the money in a so-called war chest. Goodyear and the other two large tire makers in the United States, Bridgestone and Michelin, have been working cooperatively with the union since the last contract was approved, he said.
''There seems to be a positive spirit of cooperation,'' Ludwig said.
Standard & Poor's Ratings Services rated the $1 billion in Goodyear notes at ''B+''. Standard & Poor's rates Goodyear's overall credit at BB-/Negative.
Moody's Investor Services rated the Goodyear notes at ''B1.''
Goodyear shares fell $1.35 to $12.16. Shares are up 103.7 percent since Jan .1 and are down 57.2 percent from a year ago.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.
Comments
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Columbus, OH
Posted 08:55 PM, 05/07/2009
Give it to the employees
Akron, Oh
Posted 10:41 PM, 05/07/2009
Rebuild your headquarters. Lichter cannot do it.
Posted 07:37 AM, 05/08/2009
Sounds to me like Bob wants to get his own Ponzi scheme going. Borrow money to pay off a loan is basically the same thing.
Problem is, where are you going to get capital to pay it back with. You already said the public is not driving and doesn't need replacement tires. Can't sell anything in Detroit cause it's all shut down. A pizza shop on East Market may raise a few coins but I think a guy from Italy named Tony is going to have free pizza with each car he sells and he's bringing his own tires. Hey, I got another idea. Donuts are round and they can roll too. Oh, I forgot, they are a buck apiece these days and most can't remember what a dollar is.
