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Rating Action:

MOODY'S CHANGES TYCO'S RATING OUTLOOK TO DEVELOPING AND CONFIRMS ITS Baa3 SR UNSECURED LONG-TERM AND PRIME-3 SHORT-TERM RATINGS

23 Nov 2005
MOODY'S CHANGES TYCO'S RATING OUTLOOK TO DEVELOPING AND CONFIRMS ITS Baa3 SR UNSECURED LONG-TERM AND PRIME-3 SHORT-TERM RATINGS

Approximately $15 Billion of Debt Securities Affected.

New York, November 23, 2005 -- Moody's Investors Service has confirmed the long-term and short-term ratings of Tyco International Group S.A. (TIGSA), the principle debt issuer for Tyco International Ltd. and its consolidated subsidiaries (collectively "Tyco"), concluding the review for possible upgrade that commenced in September, 2005. The rating outlook is developing. The rating actions reflect the company's strong financial performance offset by its willingness to consider a wide range of alternatives to further enhance shareholder value at the possible detriment of creditors.

Tyco's ratings acknowledge the company's strong free cash flow generation and meaningful progress in debt reduction, 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 are expected to further expand margins during a period of weak organic growth (2.9% during fiscal 2005). Moody's noted, however, that Tyco will meet its $10 billion debt bogey in fiscal 2006 and on a net debt basis is already there. As a result, further debt reduction is probably unlikely and any near-term maturities may be refinanced, rather then being paid off.

The developing outlook incorporates Moody's view that although Tyco's fundamentals and expectations for financial performance in fiscal 2006 are positive, building on solid performance in 2005, and its liquidity is very strong, the company's stated willingness to consider a broad spectrum of corporate actions in order to realize more shareholder value may adversely impact debtholders. Moreover, these possible transactions appear to be inconsistent with the financial philosophy of wanting to be a strong investment grade company and create uncertainty with regard to the possible status of credit stakeholders. The developing outlook also reflects uncertainty as to the timing, nature and potential impact of any actions on creditors.

Clarity regarding potential transactions and their financial impact on credit stakeholders, coupled with continued operational improvement, evidenced by stronger revenue growth and sustainable free cash flow generation and/or near-term resolution of ongoing investigations and legal matters within the $3 billion threshold could restore positive momentum in the ratings. More specifically, using Moody's standard adjustments, sustained free cash flow-to-debt in the 25% to 30% range, a return on assets in the high single digits and debt-to-EBITDA falling below 2.3x would support a return to positive rating momentum. On the other hand, aggressive share repurchases, large acquisitions that are debt-financed and/or adverse litigation decisions against the company in excess of a $3 billion could impact the rating or outlook negatively.

The ratings confirmed 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, if 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.

Using Moody's adjusted credit metrics, Tyco's free cash flow (less ADT dealer spend and holdbacks/earnouts) approached the $4.4 billion range, enabling the company to reduce balance sheet debt by over $4 billion during fiscal 2005, resulting in free cash flow-to-debt of 25.3%. Debt-to-EBITDA remained flat at approximately 2.5x when compared to 2004 and Tyco's return on assets remained in the low single digits.

Tyco International Ltd., headquartered in Hamilton, Bermuda, is a diversified global 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
Unknown Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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