From Akron Beacon Journal
AKRON, OH — Goodyear Tire & Rubber Co., on the verge of posting its third straight annual loss, said Tuesday it plans to take on an additional $300 million in loans to fund its operations while it continues working on its turnaround.
The Akron, Ohio, company said it is also taking steps to follow through on a promise made last year to the United Steelworkers of America to complete a large bond sale. The sale is designed to improve the company’s strength and protect union jobs.
“We’re going forward with addressing our capital needs and remaining consistent with agreements we made to the union,” Goodyear spokesman Keith Price said.
The Akron company said the move will help its short-term liquidity. The company had about $1 billion in cash as of Sept. 30, but it also faces large debt and operating commitments.
The new debt, arranged by banking giants J.P. Morgan and Citigroup, will come on top of a $1.3 billion line of credit the company negotiated with banks last year as cash was running thin and debt payments were coming due.
Most of Goodyear’s assets are already pledged as collateral to banks, as part of last year’s massive financial restructuring. Goodyear said it will begin discussions with lenders to change the terms of the debt to allow it to raise even more money through additional stock or bond offerings.
The company said it might take out “junior liens” on its assets — the equivalent of a second mortgage — to complete the deal.
Goodyear last year committed to completing a bond deal worth $250 million this year as part of a new three-year contract with the Steelworkers union. That bond sale got delayed when the company said it had uncovered “possible improper accounting issues” in Europe that would hold up the filing of certain documents with the Securities and Exchange Commission.
The union, based in Pittsburgh, said it applauded Goodyear’s move to honor its commitment. It said it would continue to monitor the situation. The union has the option of striking if the company doesn’t honor its commitment.
“It’s a good first step,” union spokesman Wayne Ranick said.
The company is still working to get to the bottom of the accounting issues, Price said. In the meantime, it is exploring other financial options, he said.
“We’re evaluating a variety of opportunities for refinancing our existing bank debt, and we’ll be working to take advantage of the strong markets,” Price said.
But there’s no guarantee that Goodyear can tap the stock or bond markets. Investors will want to see that Goodyear is making strong progress in cutting costs, increasing sales and building market share.
“Because of (our) debt ratings, recent operating performance and other factors, access to such markets cannot be assured,” Goodyear wrote in a Nov. 19 filing with the Securities and Exchange Commission. “The company’s ongoing ability to access the capital markets is highly dependent on successfully implementing its turnaround strategy.”
Any bond sale is likely to carry a relatively hefty price for Goodyear. Its debt is rated below investment grade, meaning that lenders will demand a higher interest rate in compensation for the company’s perceived higher risk of default.
The bank discussions are just the latest step for Goodyear to improve its finances. Last year, the company announced it was eliminating its dividend to save $84 million a year. It also cut about 6,000 jobs and plans to cut more than 1,000 more jobs this year.
The company has not set a date for issuing its year-end 2003 financial results. Wall Street analysts expect Goodyear to post another loss, its third in three years.
Shares in Goodyear edged down 1 cent on Tuesday, closing at $10.38.
Copyright 2004 Akron Beacon Journal. All Rights Reserved.
_______________________________________
Click here to view the rest of today’s headlines.
