S&P cuts Goodyear's credit rating further into junk as overhaul will be costly and free cash flow negative for some time
S&P Global Ratings downgraded Goodyear Tire & Rubber Co.'s (GT) issuer credit rating by one notch to B+ on Tuesday after the company announced a two-year strategic overhaul aimed at bolstering profitability. "While we view the strategic initiatives as a positive step forward for Goodyear as it tries to increase margins closer to peers and reduce leverage, the cost of the restructuring is significant and will take an extended period of time, during which we expect Goodyear's margins will be lower and free operating cash flow (FOCF) will remain negative, leading to overall weaker credit metrics than previously expected," the rating agency said in a statement. The outlook is stable, meaning S&P is not expecting to downgrade again in the near term. Goodyear will have negative free cash flow for several years, but it should maintain strong liquidity and is planning asset sales and debt reduction, said S&P. It also expects the company to sustain leverage below 6.5x. The stock was down 0.8% Tuesday, but has gained 37% in the year to date, while the S&P 500 has gained 18.7%.
-Ciara Linnane
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