Goodyear Negotiates to Get $2.3 Billion in Credit Lines

Debt-laden Goodyear Tire & Rubber Co. has gotten its banks to ante up $2.3 billion in new credit lines, though at higher pricing than the company had been paying under a previous credit arrangement.

The new revolving credit lines, arranged by Goodyear through separate but identical pacts with 44 banks, replace $2.2 billion of bank lines obtained by the Ohio tire maker in 1989.

3 New Lenders

Most banks that participated in the previous credit pacts entered into new arrangements with the company. Three lenders were added to the bank group, a Goodyear official said.

Goodyear, whose double-B debt rating reflects its highly leveraged balance sheet, had been paying a thin spread of just 37.5 basis points over the London interbank offered rate under the 1989 credit agreements.

Since Goodyear arranged those credit lines, too, the company didn't pay agency or syndication fees. Banks got only a commitment fee of 12.5 basis points.

It's not unusual for large corporations to bypass the services of an agent bank and to arrange their own credit lines. The practice is less common, however, for a company like Goodyear, whose debt rating is below what is considered investment grade.

Positive Factors

Bankers said Goodyear got away with it because of the strength of its name, a strong following among foreign as well as domestic banks, and some aggressive salesmanship on the part of the company's treasury staff.

"They should do as well selling tires," commented one banker, whose institution participated in the credit mainly in hopes of winning other business from the company.

For its part, Goodyear thinks the administrative headache of arranging its own bank lines is worth it. "I guess we feel the fees we save are worth the man-hours," a company official said.

Though company officials wouldn't discuss specific terms, it's believed that, under the new credit agreements, Goodyear will pay a spread over Libor of from 50 to 100 basis points, depending on how much it draws.

Commitment fees range from 25 to 50 basis points.

Goodyear will use the bank lines partly for general corporate purposes and also as a backup for other uncommitted borrowings, including uncommitted bank lines.

In return for paying a higher spread and fees, Goodyear was able to extend its credit availability by 18 months, to June 1994. Commitments under the prior credit agreements were to expire at yearend 1992.

Companies typically renegotiate credit lines well ahead of their expiration dates so that they do not have to reclassify the bank loans as short-term debt as the maturity date approaches.

Goodyear also won a slight easing of one financial test under its new bank agreement. "I think they felt they were going to be a little tight" in complying with the covenant this year, one of the company's bankers said.

However, the financial test gets tighter in 1992 and beyond, this banker added.

Goodyear is still laboring under a $3.7 billion debt load assumed in 1986, when the company fended off Sir James Goldsmith, the British corporate raider.

More recently, earnings have been pressured by weak tire demand and fiercely competitive pricing. However, the company said this month that it expects to report second-quarter earnings of as much as 42 cents a share, which reportedly would exceed most analysts' estimates.

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