(Adds S&P statement on Goodyear)
NEW YORK, March 20 (Reuters) - Moody's Investors Service on Thursday cut its long-term debt ratings on Goodyear Tire & Rubber Co. deeper into junk, citing struggles at the tire maker's largest unit, North American Tire.
Goodyear, the world's largest tire company by unit sales, is working with its lenders to restructure some of its loan agreements into 2005 and has received a loan waiver extension through April 4.
Its tire division has suffered from weak consumer demand in the soft U.S. economy, falling market share and high manufacturing costs.
Along with weakness at North American Tire, Moody's said, Goodyear faces rising raw material, labor, health and pension costs this year that could constrain earnings and cash flow.
"Absent a marked improvement in its end markets, namely the North American replacement tire market, Goodyear's profitability is likely to remain at depressed levels," Moody's said.
Weaker earnings and the need to make sizable cash contributions to its underfunded pension plans will constrict the company's free cash flow in the next several years and limit any improvement in debtholder protection measures, the rating agency said.
Moody's cut Akron, Ohio-based Goodyear's senior unsecured debt rating by two notches to "B1," its fourth-highest junk rating, from "Ba2." Rating downgrades usually increase borrowing costs. The outlook is stable.
Moody's also assigned a "Ba2" long-term debt rating to three proposed senior secured credit facilities totaling $3.3 billion and assigned a senior implied rating of "Ba3" and unsecured long-term issuer rating of "B1" to the company. The actions affect $7.3 billion of debt.
The downgrade of the senior unsecured rating reflects its subordination to the proposed senior secured credit facilities, Moody's said.
Goodyear said in a statement it expected to have adequate liquidity to meet its financial obligations when it completes discussions with its lenders and will announce the final terms of its proposed credit facilities once they are in place.
Moody's action gives the company's lenders the right to terminate its U.S. accounts receivable credit facility, Goodyear said. But the company said it expected to continue to have access until the agreements with its lenders are finalized, at which time it will retire the facility.
Goodyear also said it believes the rating change will not affect the availability of about $349 million in various European accounts receivable facilities, with the exception of $105 million in its German program.
The collateralization of Goodyear's restructured bank facilities will not require the company to secure any of its publicly traded debt, except about $100 million of Swiss franc-denominated bonds, which will share in liens on certain U.S. manufacturing facilities, Goodyear said.
Also on Thursday, Standard & Poor's Ratings Services said it assigned "BB+" and "BB-" ratings to Goodyear's proposed $3.3 billion of senior secured credit facilities and affirmed its "BB-" corporate credit rating on the company, with a negative outlook.
Shares of Goodyear, which are trading near their all-time low, rose 22 cents, or 5 percent, to $4.62 in midday trading on the New York Stock Exchange. (Additional reporting by Susan Kelly in Chicago)