Fitch Expects to Rate Tyco International's Planned $500MM Sr Unsec Notes 'BBB+'

The new debt will increase Tyco's total debt and leverage modestly. However, the higher pro forma debt balance of approximately $4.7 billion remains within a range of around $4.5 billion that the company has maintained since its separation in 2007. Previously, credit metrics had been at levels that Fitch considered to be relatively strong for the ratings. Fitch believes Tyco's credit metrics could weaken in the near future due to the impact of the global recession that has affected all of its business segments. Debt/EBITDA, which was 1.5 times (x) at June 26, 2009, could weaken toward a level slightly below 2.0x as estimated by Fitch. This level would be considered weak but within a normal range during an economic downturn. The Stable Rating Outlook reflects Fitch's expectation that Tyco will continue to follow conservative financial policies and that the negative impact from the recession on operating results will be mitigated by ongoing restructuring and recent signs of stabilization in Tyco's end-markets.

As it deals with a difficult operating environment, Tyco is being cautious about transactions that might reduce liquidity or increase leverage. During fiscal 2009, share repurchases have been minimal and ongoing purchases of dealer accounts, as well as small acquisitions, have been funded through free cash flow. Tyco's liquidity will increase as a result of the planned issuance of new debt before considering any debt repayment. Liquidity at June 26, 2009 totaled $3.25 billion and included $1.8 billion of cash and $1.7 billion of bank credit facilities, offset by $219 million of debt due within one year. The bank facilities expire in 2011 and 2012 and back Tyco's commercial paper (CP) that totaled $200 million at June 26, 2009. Aside from CP, there are no significant debt maturities until calendar 2011 when $1.4 billion of debt is scheduled to be repaid. Other cash requirements include pension contributions that Tyco estimates will amount to $60 million in fiscal 2009. Net pension obligations were $401 million at the end of fiscal 2008, but poor market returns and lower discount rates since the measurement date might increase the liability.

The ratings are constrained by uncertainty about the timing and strength an eventual economic rebound, ongoing recovery in the credit markets, and legacy litigation risks that pre-date Tyco's separation in 2007. Tyco has resolved the most significant legacy risks, but the resolution of remaining items could be time-consuming and possibly result in material adverse settlements or penalties. They revolve around income taxes, government investigations of governance and accounting issues, and alleged violations of the Foreign Corrupt Practices Act and antitrust laws. A portion of these contingent liabilities are shared with Covidien and Tyco Electronics. Also, Tyco continues to address material weaknesses in its internal controls related to accounting for income taxes. As these concerns are resolved and the company's end-markets eventually improve, stronger operating results and free cash flow could potentially lead to a review of the ratings toward the upside.

Tyco International Ltd.

--Issuer Default Rating (IDR) 'BBB+';

--Senior unsecured notes 'BBB+';

--Short-term IDR 'F2'.

Tyco International Finance S.A.

--IDR at 'BBB+';

--Senior unsecured revolving credit facilities 'BBB+';

--Senior unsecured notes 'BBB+';

--Short-term IDR 'F2'

--Commercial paper 'F2'.

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SOURCE: Fitch Ratings

Fitch Ratings 
Eric Ause, +1-312-606-2302 (Chicago) 
Craig Fraser, +1-212-908-0310 (New York) 
Cindy Stoller, +1-212-908-0526 (Media Relations, New York) 
cindy.stoller@fitchratings.com