CHICAGO (Sept. 29, 2003) — Fitch Ratings has removed a “ratings watch negative” designation on Goodyear with the conclusion of labor negotiations, but it retains a negative outlook for the company.
The ratings watch, applied to Goodyear's B+ rating on senior secured debt and B for senior unsecured debt, was resolved without a rate change when the United Steelworkers of America recently approved a new three-year contract.
However, the Chicago-based rating company kept its negative long-term outlook because the labor contract is not a silver bullet for the Akron-based tire maker's turnaround, Fitch said.
“While the contract does incorporate some much needed cost reduction measures, particularly in the area of pensions and healthcare, the majority of the company's near-term projected impact is represented in cost avoidance,” the company said. “Actual reduction in structural costs may be limited in the short term and, as a result, can only serve as one element of the turnaround in North American Tire operations. Of equal or greater importance now are the company's plans to increase productivity and utilization, improvement in market share, rebuilding brands and pricing integrity and restoring distribution channels.”
Fitch also said the contract's stipulation that Goodyear raise $325 million in new financing by December 2003 and refinance other facilities by December 2004 could cause increases in financing costs and tighten the time period where Goodyear will need to show improvement.