Credit analyst: Run-up in Goodyear paper on new bond buzz provides chance to sell

By Ronda Fears

Nashville, Dec. 8 - Goodyear Tire & Rubber Co. bond prices have strengthened in recent sessions due possibly to the recurring rumor of a new bond deal. As a result, investors have a chance to sell the paper, as most of the easy money in this name has been made, said Shelly Lombard, bond analyst with Gimme Credit.

"That [the new bond deals] would solve Goodyear's liquidity problems and give the company time to turn around its struggling North American tire operations," Lombard said in a report Monday, noting that proceeds would be intended to refinance near-term bond maturities.

"A potential refinancing, a new union contract, and the fact that the earnings restatement turned out to be a nonevent might lead investors to speculate that the worst is over. On the other hand, the recent run-up in price may offer a chance for investors to get out of the Goodyear credit."

Specific Goodyear (B2/B+) bonds mentioned in the report were the $267 million of 6.625% senior notes due Dec. 1, 2006, $300 million of 8.5% senior notes due March 15, 2007, $650 million of 7.875% senior notes due Aug. 15, 2011 and $150 million of 7% senior notes due March 15, 2028.

Per a new master contract with the United Steelworkers of America, Goodyear must sell at least $250 million of debt securities and at least $75 million of equity or equity-linked securities by Dec. 31, plus refinance its term loan and revolving credit facilities due April 2005 by Dec. 1, 2004.

"We expect additional short-term price appreciation if Goodyear refinances its near-term maturities, which we believe is possible. We would not be long-term holders of the remaining bonds, however," Lombard said.

"Even if its balance sheet improves, the company still has to turn its operations around. Goodyear is operating in a mature industry with overcapacity, heavy competition, and a high cost structure. We believe cash flow improvements will be very slow to materialize.

"The 'easy money' has already been made in this credit, and we would use a run-up in bond prices as an opportunity to exit."

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