Goodyear may Benefit from New Loan Terms

Following reports of Goodyear’s first quarterly profit in almost two years, JPMorgan Chase & Co are deciding whether to increase a loan to the company and to trim the interest rate it will pay.

Goodyear, which is currently rated below investment grade, saw an increase in the amount of its premium brand Assurance car tyres sold in the second quarter. This stimulated net income to reach $25.1 million (£17 million). Chief executive Robert Keegan, is also reported to be cutting expenses and discontinuing some of the company’s less profitable products to end losses totaling $2.28 billion (£1.24 billion) over the past three years.

The deal comes as interest rates on loans typically set at a margin over the London InterBank rate, called Libor, drop to record lows. Companies rated BB, two levels below investment grade, pay an average of 2.04 percentage points more than Libor, Standard & Poor’s figures show. Libor is a benchmark for short-term corporate borrowing that is set daily.

Goodyear had planned to take a term loan of $500 million (£272 million) to replace a revolving credit due in April 2005. Bankers closely involved with the deal have said that JPMorgan may boost the financing to $680 million, the size of Goodyear’s existing credit, if demand from investors is strong enough.

As of 30 June Goodyear had credit arrangements of $6.53 billion (£3.5 billion) available, of which $782.2 million was unused, according to a filing with the Securities and Exchange Commission.