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Announcement:

MOODY'S AFFIRMS TYCO'S RATINGS (SENIOR AT Baa3, SHORT-TERM PRIME-3) AND DEVELOPING OUTLOOK

13 Jan 2006
MOODY'S AFFIRMS TYCO'S RATINGS (SENIOR AT Baa3, SHORT-TERM PRIME-3) AND DEVELOPING OUTLOOK

Approximately $15 Billion of Debt Securities Affected.

New York, January 13, 2006 -- Moody's Investors Service has affirmed the long-term and short-term ratings and developing outlook of Tyco International Group S.A. (TIGSA), the principle debt issuer for Tyco International Ltd. and its consolidated subsidiaries (collectively "Tyco"), following the company's announcement that it would split into three independent, publicly-traded companies. The rating affirmations reflect the company's strong free cash flow generation offset by anemic organic revenue growth and the potential that Tyco's strategy to further enhance long-term shareholder value, by separating its portfolio of businesses, could come at the detriment of creditors. Moody's noted that the break-up will take over a year to implement and is subject to various execution risks.

Tyco's ratings acknowledge the company's strong free cash flow generation and its realization of debt reduction to its $10 billion target, while the company makes progress dealing with its litigation overhang, resulting from prior management scandals, which the company may resolve in fiscal 2006. Additionally, Tyco continues to benefit from its highly diversified operations (both by product and geography), leading market positions, strong brand names and the realization of recent cost saving initiatives that benefit margins and cash flow during periods of weak organic growth (2.9% during fiscal 2005). Moody's expects no further debt reduction beyond the $10 billion debt bogey and "excess" cash, tempered by up to $1 billion of transaction costs, will probably be applied to further share repurchases beyond the authorized $1.5 billion of which $1 billion remains outstanding. Until the break-up is completed, the company has represented that it will continue with its conservative financial policies.

The developing outlook incorporates Moody's view that although Tyco's fundamentals and expectations for financial performance in fiscal 2006 are positive and its liquidity is very strong, the company's break-up strategy may adversely impact debtholders. Moody's noted that Tyco expects to refinance existing debt through net proceeds from new debt offerings originating at the three break-up companies. As an alternative or in some combination with the proposed refinancings, Tyco could request assignment of certain extant debt to the break-up entities that the rating agency expects would include creditors' consent. As a result, ratings of extant individual debt issues may be raised, lowered or withdrawn depending on the success of the refinancing/assignment and business/financial characteristics of the break-up companies.

The developing outlook also reflects that implementation of the break-up will take at least a year to achieve, is subject to execution risks and insufficient facts are available at this time to suggest ratings movement. Although aggregate debt expected at the break-up companies of $10 billion and Tyco's intention to establish "solid investment grade" capital structures for each company reflect positive credit considerations, Moody's said "the ultimate ratings for each of the legal entities will incorporate an assessment of the market positions, strategies, capital structure and operating outlooks for each entity". Moody's will pay close attention to each company's growth prospects, the use of acquisitions to meet growth targets, and the potential for re-leveraging going forward. Allocation of cash, goodwill, debt, operating leases and unfunded pension obligations, future restructuring requirements and asset dispositions, as well as free cash flow available to meet debt and legacy legal obligations will also be key components in the final ratings of each company. Moody's will monitor the company's progress in executing its plan and will make rating adjustments as warranted by new developments.

The plan approved by Tyco's Board of Directors to break-up the existing company into three separate, publicly traded, Bermuda-based companies -- Tyco Healthcare ($9.5 and $2.3 billion of revenue and operating income in 2005), Tyco Electronics ($12 and $1.9 billion) and Tyco Fire & Security and Engineered Products & Services ($18 and $1.9 billion) -- is expected to occur through tax-free stock dividends during the first calendar quarter of 2007. Management estimates that one-time transaction costs, consisting of tax, debt refinancing and other costs totaling $1 billion, will be incurred prior to separation. Tyco currently intends to establish sharing agreements between the three entities to share liabilities not identifiable with a particular entity, such as legacy litigation. In addition, Tyco represents that each entity will aim to develop flexible capital structures consistent with investment grade ratings, pay dividends that in the aggregate equal Tyco's current dividends, have independent Board of Directors and maintain strong corporate governance standards.

The ratings affirmed with a developing outlook include:

Tyco International Group S.A. - Baa3 for senior notes and debentures, shelf registration ratings of (P)Baa3 for senior debt securities, (P)Ba1 for subordinated debt securities, Baa3 senior unsecured debt rating for the $2.5 billion senior unsecured bank revolving credit agreements and Prime-3 for the short-term debt rating. These debt obligations and shelf registration are guaranteed by Tyco International Ltd.

Tyco International Ltd. - Shelf registration ratings of (P)Ba1 for senior debt securities, (P)Ba2 for subordinated debt securities and (P)Ba3 for preferred stock. Debt securities issued at the Bermuda holding company would be structurally subordinate to debt securities raised at the TIGSA level.

Tyco International (US) Inc. - Baa2 for senior unsecured notes and debentures. Debt securities issued at this operating subsidiary level precede the formation of TIGSA and are structurally superior to debt securities issued at the TIGSA level. Since no financials are available and TIGSA does not guarantee this debt, the ratings will be withdrawn

Mallinckrodt Inc. - Baa3 rating for senior unsecured notes, debentures and industrial revenue bonds, guaranteed by TIGSA.

Raychem Corporation - Baa3 rating on the senior unsecured notes, guaranteed by TIGSA.

Tyco International Ltd., headquartered in Hamilton, Bermuda, is a global, diversified manufacturing and service company of industrial and commercial products serving the fire and security, healthcare, electronics, engineered products and services and plastics and adhesives markets.

New York
Tom Marshella
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
George A. Meyers
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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