Banks Give Akron, Ohio-Based Goodyear Credit Line, Loan Extension
acs.yellowbrix.com Source: Akron Beacon Journal (Akron, Ohio) Publication date: 2003-03-05
Mar. 5--Goodyear Tire & Rubber Co. just dodged a large nail in the road.
The Akron tire maker has a new credit-line agreement that gives it access to much-needed cash, and it has a one-month extension on some existing loans so it can arrange new terms. Both provide financial breathing room.
Once the company renegotiates those bank loans it plans to announce fourth quarter and 2002 earnings -- numbers that are due no later than the end of the month.
Goodyear also is working to dodge other nails in the road as it tries to shed billions of dollars of debt and make money again.
With a Friday deadline looming, Goodyear announced on Wednesday it will receive a new, $1.3 billion credit line that depends on it finishing a restructuring of major loan agreements with its banks.
The Akron company received the three-year credit commitment from JPMorgan and Citigroup. And it now has until April 4, instead of March 7, to comply with covenants on other bank loan agreements, the company said. Goodyear had received previous waivers on the covenants, which include a provision that could force it to distribute $500 million to its pension plans.
The company said it is working with JPMorgan to restructure, refinance and extend the loan agreements into 2005.
"Extending the agreements into 2005 gives you more time to turn around the business," Goodyear spokesman Keith Price said.
"In essence, the banks bought them more time," said Brian Fox, a fixed income analyst who follows Goodyear for McDonald Investments in Cleveland. "The banks are going to give some time to Goodyear to shore up its operations."
The new financing will help Goodyear pay its bills, Fox said.
Goodyear obviously had violated some covenants in its loan agreements as of Dec. 31, said Saul Ludwig, equity analyst at McDonald Investments. The banks agreed to work with Goodyear until March 7 to get the company out of default on those covenants and have now given the company another month, he said.
"The new asset-based facility ...provides additional liquidity that offers financial and operational flexibility for our businesses," Robert W. Tieken, Goodyear executive vice president and chief financial officer, said in a prepared statement.
Goodyear stock rose 29 cents, or 7.3 percent, to close at $4.29. The stock has fallen 37 percent this year, and is down 84 percent from a year ago.
Some of the new financing will be used to pay down other loans, Price said.
In addition, Goodyear said it will announce fiscal 2002 results once the loan agreements are worked out, but did not give a specific date.
"We want to be able to talk about the bank deal and the fourth-quarter numbers at the same time," Price said. "It simplifies things."
The company may release earnings figures as early as next week or the week after, Fox said. The Securities & Exchange Commission requires publicly traded companies whose fiscal years end on Dec. 31 to file detailed annual reports called 10Ks no later than the end of March.
"It's not like we're late," Price said. "We're waiting until the bank agreements are done."
Goodyear has not asked the SEC to allow the company to file the financial results after March 31, he said.
The company lost $203.6 million in 2001. Earlier this year, Goodyear eliminated its dividend in a move intended to save $84 million a year in cash. Also this year, it laid off 500 employees and said it won't fill 200 open positions, which will save it another $80 million a year.
Goodyear needs to make as much as $3 billion in debt repayments over the next three years. Its latest public financial filings show Goodyear has to repay about $370 million in long-term debt this year, and another $809 million in 2004.
While the new line of credit and anticipated bank loan agreements will help Goodyear in the near future, it still has long-term problems involving its pension fund, asbestos liabilities and high raw material prices that are greatly affected by crude oil, Fox said.
"This isn't going to be a quick turnaround," he said.
The company needs the stock market to turn around in order to help it with pension funding, he said.
In addition, the company would be helped greatly if crude oil prices fell from around $36 a barrel to between $20 and $25 a barrel, he said. Oil prices will largely depend upon the outcome of any military conflict in Iraq and the restoration of Venezuela's oil production, he said.
"There are a number of different variables that have to go in different directions to be favorable for the company," Fox said.
To see more of the Akron Beacon Journal, or to subscribe to the newspaper, go to www.ohio.com
(c) 2003, Akron Beacon Journal, Ohio. Distributed by Knight Ridder/Tribune Business News.
GT, C,