New Loan Smooths Ride for Goodyear

Goodyear GT has driven a new bargain with its lenders.

The struggling tire manufacturer rolled out news Wednesday of a fresh credit line and extended waivers on existing company loans. The onetime powerhouse is leaning heavily on its lenders as it strains to regain market share and financial stability.

In a statement Wednesday, Goodyear celebrated the new financing arrangements as a crucial step in its uphill journey for recovery.

"The new ... facility, which extends into 2006, provides additional liquidity that offers financial and operational flexibility for our businesses," said Goodyear CFO Robert Tieken. "We are pleased with these developments as we continue to make progress with our banks, with whom we have had strong, long-standing relationships."

Goodyear said it has secured commitments from J.P. Morgan and Citigroup to underwrite a new, three-year $1.3 billion asset-based credit facility. But the deal will not be finalized until Goodyear amends currently violated covenants in existing loan agreements.

Goodyear is attempting to hammer out a deal that would relax demands for hefty pension contributions that are currently past due. The company announced Wednesday that it had secured new loan waivers that will give it another month to negotiate the change.

Goodyear investors, jolted last month by fresh liquidity fears, embraced the latest news. Shares of Goodyear jumped 5.3% to $4.21 after Wednesday's announcements. The stock has climbed 26% since Feb. 6, when it set a 20-year low after the company eliminated its dividend, and a Wall Street analyst sounded loud warning bells about a likely liquidity crisis.

Tired Out Goodyear still sagging

UBS analyst Saul Rubin, who issued that cautionary report, believes Goodyear could easily come up short even under best-case scenarios. He expects Goodyear to lose money both this year and next, absent a "stunning recovery" that he doesn't foresee. Meanwhile, he says the company needs between $2.7 billion and $3.4 billion to pay off debt and pension contributions over the next three years.

"Can Goodyear satisfy all its obligations and still operate its business?" Rubin wrote in his report. "Frankly, we think the odds are against it.

"Assuming the company used every last inch of its credit facilities, that would leave the company in search of a cool half-billion to meet obligations."

For now, Rubin says Goodyear's stock is overvalued at anything above $3.50 a share, and in fact has "zero equity value" under traditional measurements. Rubin is among a host of Wall Street analysts who've grown frosty on the Goodyear name.