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Moody’s Places Dealer Tire Rating Under Review for Downgrade

Moody’s Investors Service placed its ratings for Dealer Tire, LLC under review for downgrade after Bridgestone and Goodyear announced its plans to form a joint distribution venture, TireHub.

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Moody’s Investors Service placed its ratings for Dealer Tire, LLC under review for a downgrade.

The review follows an announcement this week that The Goodyear Tire & Rubber Company (Ba2 stable) and Bridgestone Americas (A2 stable) are forming one of the largest tire distribution joint ventures in the United States, called TireHub. The ratings under consideration for a downgrade include the company’s B1 Corporate Family Rating (CFR). B2-PD Probability of Default Rating and the B1 ratings for the company’s senior secured bank credit facilities.

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“The niche position that Dealer Tire enjoys with respect to its key OEM customers in the dealership channel should allow the company to leverage those relationships and mitigate some loss of sales and/or eroding economic returns owing to this new market participant, but the development is credit negative, nonetheless,” said Inna Bodeck, Moody’s lead analyst for Dealer Tire.

“We enjoy an exceptional working relationship with Bridgestone and Goodyear,” said Jill Marcotte, partner and chief supply chain officer for Dealer Tire. “They have assured us that they value our partnership and that they will continue to fully support our business model. It’s an exciting time to be in the tire business, and we’re looking forward to continuing to adapt and evolve in an ever-changing landscape.”

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The review for a downgrade reflects Moody’s view that, subsequent to the Goodyear-Bridgestone joint venture formation, Dealer Tire’s fundamental creditworthiness is likely to weaken to a level that may be inconsistent with its current ratings. Moody’s review will focus on the business and financial implications of the Goodyear-Bridgestone deal for Dealer Tire, including the company’s top line, profitability, cash flow and liquidity measures. It will also include Dealer Tire’s ability to renegotiate or augment current terms with Goodyear and Bridgestone; to adjust its heavily fixed operating cost base in the face of a potential decline in revenues; and to restore revenue growth by potentially creating other alliances with OEMs to further diversify its mix of tire offerings.

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Dealer Tire, LLC, headquartered in Cleveland, Ohio, is primarily engaged in the business of distributing replacement tires through alliance relationships with automobile OEMs and their dealership networks in the U.S. and Canada. The company also provides warranty processing, billing services, logistics services, marketing programs and training for its customers. Its 12-month revenue ending September 30, 2017 was approximately $1.5 billion.

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