AKRON (Oct. 17, 2006) — Standard & Poor's Ratings Services placed Goodyear's credit ratings on CreditWatch with negative implications because of the ongoing union strike at 16 of the tire maker's North American plants.
S&P noted the “potential for business disruptions and earnings pressures that could result” from the strike, which was started Oct. 5 by the United Steelworkers (USW) union after contract talks failed. Goodyear has total debt of about $7 billion, S&P said.
S&P noted that Goodyear borrowed nearly $1 billion from a revolving credit facility since the strike to enhance liquidity and that the Akron-based tire maker's liquidity should meet its cash requirements for the next several months.
“But the business and financial costs to the company will rise over time,” S&P said in a statement. “Goodyear currently is able to meet most customer requirements through existing inventory, but as inventory is depleted, the company would experience shortages that could damage customer relationships.”
S&P analyst Martin King said Goodyear's credit ratings could suffer if the strike appears likely to strain the company's credit profile.
Analyst John Murphy of Merrill Lynch also said in a note to investors that a protracted strike is “more likely” as Goodyear draws more funds from its credit facilities. The first day of the strike Goodyear borrowed $300 million, followed by another $675 million on Oct. 13, nearly drawing on the full amount of the facility.
“The draw down of the revolver leads us to believe that negotiations are not going as well as Goodyear originally anticipated when the strike began,” Mr. Murphy wrote.
However, Mr. King at S&P said he believes Goodyear and the USW ultimately will be able to work out an agreement that “should help Goodyear to lower its burdensome cost position in North America.”