MOODY'S CONTINUES ITS REVIEW OF TYCO'S DEBT RATINGS (SENIOR AT Ba2) FOR POSSIBLE DOWNGRADE
New York, July 02, 2002 -- Moody's Investors Service is continuing its review for possible downgrade of Tyco International Ltd. and its subsidiaries. The rating agency said that the completion of the CIT initial public offering (IPO), which provides Tyco with net proceeds of approximately $4.6 billion to begin needed debt reduction, is a positive development. However, Moody's believes that Tyco will continue to face a significant debt burden with sizable maturities over the next eighteen months. The rating agency noted that in addition to the CIT IPO proceeds, Tyco anticipates cash liquidity of $2.5-$3.0 billion as of June 30 (after fully drawing its available bank lines earlier this year), as well as free cash flow which should enable it to meet funding needs during the current calendar year. The company expects free cash flow in the range of $4.2-$4.5 billion in its 2003 fiscal year, and a refinancing need of $1.5 billion in November, 2003.
Moody's ongoing review will consider any emerging issues related to the company's internal investigation, as well as its progress in identifying new management leadership. The review will incorporate any changes in the company's strategic direction that could include potential goodwill or asset impairment charges and financial policies under the new management team, plus any actions implemented to enhance corporate governance practices. Moody's will also focus on Tyco's liquidity and proposed application of net proceeds from the CIT IPO for debt paydown. The review will evaluate the company's ongoing refinancing plan, as well as Tyco's ability to repay/refinance maturing debt over the next 12-18 months, including two convertible debt issues that have "put" features that could require significant cash calls in calendar 2003. The rating agency said that the company's ability to access the capital markets and to restore normal banking relationships will be evaluated, and notes that Tyco's term loan under its $3.855 billion 364-day revolver matures in February 2003. Moody's will also assess the company's ability to restore profitability to historical levels, especially within the Electronics segment, as well as cash flow generation in a new operating environment where Tyco expects more modest 10-15% organic growth and diminished acquisition activity. Although interim management has confirmed current strategy and earnings expectations for the third quarter (ending June 30) and the full year (ending September 30), Moody's expects that achieving these financial results will be challenging as adverse publicity surrounding Tyco has impacted normal customer, supplier and investor relationships..
Ratings remaining under review for possible downgrade are:
Tyco International Ltd. - Ba3 for convertible debentures (Liquid Yield Option Notes); (P)Ba3, (P)B1 and (P)B2, respectively for senior debt securities, subordinated debt securities, and preferred stock issued under its 415 shelf registration
Tyco International Group S.A. - Ba2 for senior notes and debentures; (P)Ba2 and (P)Ba3, respectively, for senior debt securities and subordinated debt securities issued under its 415 shelf registration; Ba2 for bank revolving credit facilities; and Not Prime for short-term debt obligations. These debt obligations and shelf registration are guaranteed by Tyco International Ltd.
Tyco International (US) Inc. - Ba1 for senior unsecured notes and debentures.
ADT Operations, Inc. - Ba2 for senior subordinated notes; and Ba2 for subordinated Liquid Yield Option Notes. Both are guaranteed by Tyco International Ltd. on a subordinated basis.
Raychem Corporation - Ba3 for the $388 million senior, unsecured notes.
Mallinckrodt Inc. - Ba3 for senior unsecured notes and debentures, and industrial revenue bonds.
Tyco International Ltd., headquartered in Hamilton, Bermuda, is a diversified global manufacturing and service company serving the fire protection, electronic security service, disposable medical products, packaging materials, flow control, electrical and electronic components, and underwater telecommunication markets
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