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Financing Arrangements and Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2020
Financing Arrangements And Derivative Financial Instruments [Abstract] |
Financing Arrangements and Derivative Financial Instruments | NOTE 10. FINANCING ARRANGEMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS At September 30, 2020, we had total credit arrangements of $9,586 million, of which $3,098 million were unused. At that date, 31% of our debt was at variable interest rates averaging 2.63%. Notes Payable and Overdrafts, Long Term Debt and Finance Leases due Within One Year and Short Term Financing Arrangements At September 30, 2020, we had short term committed and uncommitted credit arrangements totaling $903 million, of which $351 million were unused. These arrangements are available primarily to certain of our foreign subsidiaries through various banks at quoted market interest rates. The following table presents amounts due within one year:
|  | September 30, |  |  | December 31, |
(In millions) |  | 2020 |  |  | 2019 |
Chinese credit facilities |  | $ | 211 |  |  | $ | 118 |
Other domestic and foreign debt |  |  | 318 |  |  |  | 230 |
Notes Payable and Overdrafts |  | $ | 529 |  |  | $ | 348 |
Weighted average interest rate |  |  | 4.41 | % |  |  | 4.92 | %
Chinese credit facilities |  | $ | 16 |  |  | $ | 95 |
8.75% due 2020 |  |  | — |  |  |  | 280 |
Other domestic and foreign debt (including finance leases) |  |  | 395 |  |  |  | 187 |
Long Term Debt and Finance Leases due Within One Year |  | $ | 411 |  |  | $ | 562 |
Weighted average interest rate |  |  | 2.56 | % |  |  | 6.58 | %
Total obligations due within one year |  | $ | 940 |  |  | $ | 910 |
Long Term Debt and Finance Leases and Financing Arrangements At September 30, 2020, we had long term credit arrangements totaling $8,683 million, of which $2,747 million were unused. The following table presents long term debt and finance leases, net of unamortized discounts, and interest rates:
|  | September 30, 2020 |  |  | December 31, 2019 |
|  |  |  |  |  | Interest |  |  |  |  |  |  | Interest |
(In millions) |  | Amount |  |  | Rate |  |  | Amount |  |  | Rate |
Notes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
8.75% due 2020 |  | $ | — |  |  |  |  |  |  | $ | 280 |  |  |  |  |
5.125% due 2023 |  |  | 1,000 |  |  |  |  |  |  |  | 1,000 |  |  |  |  |
3.75% Euro Notes due 2023 |  |  | 293 |  |  |  |  |  |  |  | 281 |  |  |  |  |
9.5% due 2025 |  |  | 803 |  |  |  |  |  |  |  | — |  |  |  |  |
5% due 2026 |  |  | 900 |  |  |  |  |  |  |  | 900 |  |  |  |  |
4.875% due 2027 |  |  | 700 |  |  |  |  |  |  |  | 700 |  |  |  |  |
7% due 2028 |  |  | 150 |  |  |  |  |  |  |  | 150 |  |  |  |  |
Credit Facilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
First lien revolving credit facility due 2025 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Second lien term loan facility due 2025 |  |  | 400 |  |  |  | 2.16 | % |  |  | 400 |  |  |  | 3.97 | %
European revolving credit facility due 2024 |  |  | 100 |  |  |  | 1.65 | % |  |  | — |  |  |  | — |
Pan-European accounts receivable facility |  |  | 270 |  |  |  | 1.00 | % |  |  | 327 |  |  |  | 0.98 | %
Mexican credit facility |  |  | 200 |  |  |  | 2.43 | % |  |  | 200 |  |  |  | 3.44 | %
Chinese credit facilities |  |  | 208 |  |  |  | 4.50 | % |  |  | 195 |  |  |  | 4.87 | %
Other foreign and domestic debt(1) |  |  | 881 |  |  |  | 2.56 | % |  |  | 661 |  |  |  | 4.02 | %
|  |  | 5,905 |  |  |  |  |  |  |  | 5,094 |  |  |  |  |
Unamortized deferred financing fees |  |  | (34 | ) |  |  |  |  |  |  | (28 | ) |  |  |  |
|  |  | 5,871 |  |  |  |  |  |  |  | 5,066 |  |  |  |  |
Finance lease obligations(2) |  |  | 248 |  |  |  |  |  |  |  | 249 |  |  |  |  |
|  |  | 6,119 |  |  |  |  |  |  |  | 5,315 |  |  |  |  |
Less portion due within one year |  |  | (411 | ) |  |  |  |  |  |  | (562 | ) |  |  |  |
|  | $ | 5,708 |  |  |  |  |  |  | $ | 4,753 |  |  |  |  |
(1) | Interest rates are weighted average interest rates related to various foreign credit facilities with customary terms and conditions.
(2) | Includes non-cash financing additions of $2 million during the nine month period ended September 30, 2020.
NOTES At September 30, 2020, we had $3,846 million of outstanding notes, compared to $3,311 million at December 31, 2019. $282 million 8.75% Senior Notes due 2020 On August 17, 2020, we repaid in full our $282 million 8.75% senior notes at maturity. $800 million 9.5% Senior Notes due 2025 On May 18, 2020, we issued $600 million in aggregate principal amount of 9.5% senior notes due 2025. These notes were sold at 100% of the principal amount and will mature on May 31, 2025. On May 22, 2020, we issued $200 million in aggregate principal amount of additional notes, which were sold at 101.75% of the principal amount at an effective yield of 9.056%. These notes are unsecured senior obligations and are guaranteed by our U.S. and Canadian subsidiaries that also guarantee our obligations under our U.S. senior secured credit facilities described below. The terms of the indenture for these notes, among other things, limit the ability of the Company and certain of its subsidiaries to (i) incur additional debt or issue redeemable preferred stock, (ii) pay dividends, repurchase shares or make certain other restricted payments or investments, (iii) incur liens, (iv) sell assets, (v) incur restrictions on the ability of our subsidiaries to pay dividends or to make other payments to us, (vi) enter into affiliate transactions, (vii) engage in sale and leaseback transactions, and (viii) consolidate, merge, sell or otherwise dispose of all or substantially all of our assets. These covenants are subject to significant exceptions and qualifications. For example, if these notes are assigned an investment grade rating by at least two of Moody's, Standard and Poor's and Fitch and no default has occurred and is continuing, certain covenants will be suspended and we may elect to suspend the subsidiary guarantees. The indenture has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries. CREDIT FACILITIES $2.0 billion Amended and Restated First Lien Revolving Credit Facility due 2025 On April 9, 2020, we amended and restated our $2.0 billion first lien revolving credit facility. Changes to the facility include extending the maturity to April 9, 2025 and increasing the borrowing base for the facility by increasing the amount attributable to the value of our principal trademarks by $100 million and adding the value of eligible machinery and equipment. The interest rate for loans under the facility increased by 50 basis points to LIBOR plus 175 basis points, based on our current liquidity as described below, and undrawn amounts under the facility will be subject to an annual commitment fee of 25 basis points. Our amended and restated first lien revolving credit facility is available in the form of loans or letters of credit. Up to $800 million in letters of credit and $50 million of swingline loans are available for issuance under the facility. Subject to the consent of the lenders whose commitments are to be increased, we may request that the facility be increased by up to $250 million. Our obligations under the facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries. Our obligations under the facility and our subsidiaries' obligations under the related guarantees are secured by first priority security interests in a variety of collateral. Availability under the facility is subject to a borrowing base, which is based on (i) eligible accounts receivable and inventory of The Goodyear Tire & Rubber Company and certain of its U.S. and Canadian subsidiaries, (ii) the value of our principal trademarks in an amount not to exceed $400 million, (iii) the value of eligible machinery and equipment, and (iv) certain cash in an amount not to exceed $200 million. To the extent that our eligible accounts receivable and inventory and other components of the borrowing base decline in value, our borrowing base will decrease and the availability under the facility may decrease below $2.0 billion. As of September 30, 2020, our borrowing base, and therefore our availability, under this facility was $393 million below the facility's stated amount of $2.0 billion. The facility has customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material adverse change in our business or financial condition since December 31, 2019. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries. If Available Cash (as defined in the facility) plus the availability under the facility is greater than $750 million, amounts drawn under the facility will bear interest, at our option, at (i) 175 basis points over LIBOR or (ii) 75 basis points over an alternative base rate (the higher of (a) the prime rate, (b) the federal funds effective rate or the overnight bank funding rate plus 50 basis points or (c) LIBOR plus 100 basis points). If Available Cash plus the availability under the facility is equal to or less than $750 million, then amounts drawn under the facility will bear interest, at our option, at (i) 200 basis points over LIBOR or (ii) 100 basis points over an alternative base rate. At September 30, 2020, we had no borrowings and $14 million of letters of credit issued under the revolving credit facility. At December 31, 2019, we had no borrowings and $37 million of letters of credit issued under the revolving credit facility. Amended and Restated Second Lien Term Loan Facility due 2025 Our amended and restated second lien term loan facility matures on March 7, 2025. The term loan bears interest, at our option, at (i) 200 basis points over LIBOR or (ii) 100 basis points over an alternative base rate (the higher of (a) the prime rate, (b) the federal funds effective rate or the overnight bank funding rate plus 50 basis points or (c) LIBOR plus 100 basis points). In addition, if the Total Leverage Ratio is equal to or less than 1.25 to 1.00, we have the option to further reduce the spreads described above by 25 basis points. "Total Leverage Ratio" has the meaning given it in the facility. Our obligations under our second lien term loan facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries and are secured by second priority security interests in the same collateral securing the $2.0 billion first lien revolving credit facility. At September 30, 2020 and December 31, 2019, the amounts outstanding under this facility were $400 million. €800 million Amended and Restated Senior Secured European Revolving Credit Facility due 2024 Our amended and restated European revolving credit facility consists of (i) a €180 million German tranche that is available only to Goodyear Dunlop Tires Germany GmbH (“GDTG”) and (ii) a €620 million all-borrower tranche that is available to Goodyear Europe B.V. (“GEBV”), GDTG and Goodyear Dunlop Tires Operations S.A. Up to €175 million of swingline loans and €75 million in letters of credit are available for issuance under the all-borrower tranche. Amounts drawn under this facility will bear interest at LIBOR plus 150 basis points for loans denominated in U.S. dollars or pounds sterling and EURIBOR plus 150 basis points for loans denominated in euros, and undrawn amounts under the facility are subject to an annual commitment fee of 25 basis points. GEBV and certain of its subsidiaries in the United Kingdom, Luxembourg, France and Germany provide guarantees to support the facility. The German guarantors secure the German tranche on a first-lien basis and the all-borrower tranche on a second-lien basis. GEBV and its other subsidiaries that provide guarantees secure the all-borrower tranche on a first-lien basis and generally do not provide collateral support for the German tranche. The Company and its U.S. and Canadian subsidiaries that guarantee our U.S. senior secured credit facilities described above also provide unsecured guarantees in support of the facility. The facility has customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material adverse change in our business or financial condition since December 31, 2018. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries. At September 30, 2020, there were $100 million (€85 million) of borrowings outstanding under the German tranche, no borrowings outstanding under the all-borrower tranche and no letters of credit outstanding under the European revolving credit facility. At December 31, 2019, there were no borrowings and no letters of credit outstanding under the European revolving credit facility. Accounts Receivable Securitization Facilities (On-Balance Sheet) GEBV and certain other of our European subsidiaries are parties to a pan-European accounts receivable securitization facility that expires in 2023. The terms of the facility provide the flexibility to designate annually the maximum amount of funding available under the facility in an amount of not less than €30 million and not more than €450 million. For the period from October 18, 2018 through October 15, 2020, the designated maximum amount of the facility was €320 million. For the period from October 16, 2020 through October 18, 2021, the designated maximum amount of the facility was decreased to €280 million. The facility involves the ongoing daily sale of substantially all of the trade accounts receivable of certain GEBV subsidiaries. These subsidiaries retain servicing responsibilities. Utilization under this facility is based on eligible receivable balances. The funding commitments under the facility will expire upon the earliest to occur of: (a) September 26, 2023, (b) the non-renewal and expiration (without substitution) of all of the back-up liquidity commitments, (c) the early termination of the facility according to its terms (generally upon an Early Amortisation Event (as defined in the facility), which includes, among other things, events similar to the events of default under our senior secured credit facilities; certain tax law changes; or certain changes to law, regulation or accounting standards), or (d) our request for early termination of the facility. The facility’s current back-up liquidity commitments will expire on October 18, 2021. At September 30, 2020, the amounts available and utilized under this program totaled $270 million (€230 million). At December 31, 2019, the amounts available and utilized under this program totaled $327 million (€291 million). The program does not qualify for sale accounting, and accordingly, these amounts are included in Long Term Debt and Finance Leases. For a description of the collateral securing the credit facilities described above as well as the covenants applicable to them, refer to Note to the Consolidated Financial Statements No. 15, Financing Arrangements and Derivative Financial Instruments, in our 2019 Form 10-K. Accounts Receivable Factoring Facilities (Off-Balance Sheet) We have sold certain of our trade receivables under off-balance sheet programs. For these programs, we have concluded that there is generally no risk of loss to us from non-payment of the sold receivables. At September 30, 2020, the gross amount of receivables sold was $468 million, compared to $548 million at December 31, 2019. Other Foreign Credit Facilities A Mexican subsidiary and a U.S. subsidiary have a revolving credit facility in Mexico. At September 30, 2020 and December 31, 2019, the amounts available and utilized under this facility were $200 million. The facility ultimately matures in 2022, has covenants relating to the Mexican and U.S. subsidiary, and has customary representations and warranties and default provisions relating to the Mexican and U.S. subsidiary’s ability to perform its respective obligations under the facility. A Chinese subsidiary has several financing arrangements in China. At September 30, 2020 and December 31, 2019, the amounts available under these facilities were $849 million and $735 million, respectively. At September 30, 2020, the amount utilized under these facilities was $419 million, of which $211 million represented notes payable and $208 million represented long term debt. At September 30, 2020, $16 million of the long term debt was due within a year. At December 31, 2019, the amount utilized under these facilities was $313 million, of which $118 million represented notes payable and $195 million represented long term debt. At December 31, 2019, $95 million of the long term debt was due within a year. The facilities contain covenants relating to the Chinese subsidiary and have customary representations and warranties and defaults relating to the Chinese subsidiary’s ability to perform its obligations under the facilities. Certain of the facilities can only be used to finance the expansion of our manufacturing facility in China and, at September 30, 2020 and December 31, 2019, the unused amounts available under these facilities were $104 million and $106 million, respectively. DERIVATIVE FINANCIAL INSTRUMENTS We utilize derivative financial instrument contracts and nonderivative instruments to manage interest rate, foreign exchange and commodity price risks. We have established a control environment that includes policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. We do not hold or issue derivative financial instruments for trading purposes. Foreign Currency Contracts We enter into foreign currency contracts in order to manage the impact of changes in foreign exchange rates on our consolidated results of operations and future foreign currency-denominated cash flows. These contracts may be used to reduce exposure to currency movements affecting existing foreign currency-denominated assets, liabilities, firm commitments and forecasted transactions resulting primarily from trade purchases and sales, equipment acquisitions, intercompany loans and royalty agreements. Contracts hedging short term trade receivables and payables normally have no hedging designation. The following table presents the fair values for foreign currency hedge contracts that do not meet the criteria to be accounted for as cash flow hedging instruments:
|  | September 30, |  |  | December 31, |
(In millions) |  | 2020 |  |  | 2019 |
Fair Values — Current asset (liability): |  |  |  |  |  |  |  |
Accounts receivable |  | $ | 21 |  |  | $ | 1 |
Other current liabilities |  |  | (11 | ) |  |  | (15 | )
At September 30, 2020 and December 31, 2019, these outstanding foreign currency derivatives had notional amounts of $1,931 million and $1,707 million, respectively, and were primarily related to intercompany loans. Other (Income) Expense included net transaction losses on derivatives of $49 million and $51 million for the three and nine months ended September 30, 2020, respectively. Other (Income) Expense included net transaction gains on derivatives of $31 million and $40 million for the three and nine months ended September 30, 2019, respectively. These amounts were substantially offset in Other (Income) Expense by the effect of changing exchange rates on the underlying currency exposures. The following table presents the fair values for foreign currency hedge contracts that meet the criteria to be accounted for as cash flow hedging instruments:
|  | September 30, |  |  | December 31, |
(In millions) |  | 2020 |  |  | 2019 |
Fair Values — Current asset (liability): |  |  |  |  |  |  |  |
Accounts receivable |  | $ | — |  |  | $ | 9 |
Other current liabilities |  |  | (4 | ) |  |  | (3 | )
Fair Values — Long term asset (liability): |  |  |  |  |  |  |  |
Other assets |  | $ | — |  |  | $ | 1 |
Other long term liabilities |  |  | — |  |  |  | (1 | )
At September 30, 2020 and December 31, 2019, these outstanding foreign currency derivatives had notional amounts of $53 million and $365 million, respectively, and primarily related to U.S. dollar denominated intercompany transactions. Based on our current forecasts, including the expected impacts of the COVID-19 pandemic, we believe that it is probable that the underlying hedge transactions will occur within an appropriate time frame in order to continue to qualify for cash flow hedge accounting treatment. We enter into master netting agreements with counterparties. The amounts eligible for offset under the master netting agreements are not material and we have elected a gross presentation of foreign currency contracts in the Consolidated Balance Sheets. The following table presents the classification of changes in fair values of foreign currency hedge contracts that meet the criteria to be accounted for as cash flow hedging instruments (before tax and minority):
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
(In millions) |  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Amount of gains (losses) deferred to Accumulated Other Comprehensive Loss ("AOCL")(1) |  | $ | (1 | ) |  | $ | 14 |  |  | $ | 19 |  |  | $ | 18 |
Reclassification adjustment for amounts recognized in Cost of Goods Sold ("CGS")(1) |  |  | (3 | ) |  |  | (3 | ) |  |  | (11 | ) |  |  | (9 | )
(1) | Excluded components deferred to AOCL and excluded components reclassified from AOCL to CGS for the three and nine months ended September 30, 2020 and 2019 were not material.
The estimated net amount of deferred gains at September 30, 2020 that are expected to be reclassified to earnings within the next twelve months is $8 million. The counterparties to our foreign currency contracts were considered by us to be substantial and creditworthy financial institutions that were recognized market makers at the time we entered into those contracts. We seek to control our credit exposure to these counterparties by diversifying across multiple counterparties, by setting counterparty credit limits based on long term credit ratings and other indicators of counterparty credit risk such as credit default swap spreads, and by monitoring the financial strength of these counterparties on a regular basis. We also enter into master netting agreements with counterparties when possible. By controlling and monitoring exposure to counterparties in this manner, we believe that we effectively manage the risk of loss due to nonperformance by a counterparty. However, the inability of a counterparty to fulfill its contractual obligations to us could have a material adverse effect on our liquidity, financial position or results of operations in the period in which it occurs.

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