Chemical Bank is leading a $1.2 billion credit for Goodyear Tire and Rubber Co., marking the first time since the 1980s that the company has used an agent bank.
Citibank previously served as Goodyear's agent bank, but in recent years, the company has arranged its own bank credit lines, preferring to do the work itself, and save on the fees that an agent would charge.
In the past year, though, competition among banks has pushed pricing so low that the cost savings to Goodyear in arranging its own credit line might not have been all that compelling.
Officials at Goodyear and Chemical didn't return phone calls for comment by press time.
The new credit consolidates Goodyear's existing self-arranged facilities into one smaller credit, reflecting the company's ongoing debt-reduction program.
Cutting Its Debt
Last year, Goodyear cut its long- and short-term debt by almost $500 million, said Robert Ray, managing director at Moody's Investors Service.
Goodyear leveraged up its balance sheet in the mid-80's, fending off a hostile takeover bid by British corporate raider Sir James Goldsmith.
The Akron, Ohio-based company, the largest U.S. supplier of tires to both the original-equipment and replacement markets, has since regained an investment-grade credit rating.
Goodyear's senior debt is rated Baa3 by Moody's, and an equivalent BBB-by Standard & Poor's Corp.
Both rating agencies view Goodyear's credit outlook favorably, but an upgrade does not appear imminent.
The $1.2-billion credit consists of two parts - a $300 million portion maturing in 364 days, and a five-year $800 million part. Little, if any, usage is expected.
Goodyear will pay an annual facility fee of 10 basis points on the undrawn amount of the 364-day portion, and 18.75 basis points on the five-year part.
The pricing is at least several basis points lower than the prevailing rate for similarly-rated companies, market sources said.
It remains to be seen, though, whether the Goodyear credit will establish a new pricing benchmark for BBB- credits. Given its strong name recognition, Goodyear may be able to command more favorable pricing than other companies with the same rating.
Moody's Mr. Ray said Goodyear's basic tire business is performing well, but the company's investment in a crude oil pipeline running from California to Texas is a source of concern.
Called the All American pipeline, Goodyear made the investment a decade or so ago as part of a diversification move, but the economic assumptions underlying the investment proved faulty, Mr. Ray said.