Tyco to Repurchase $4.5 Billion of Commercial Paper (Update2)
By Rachel Layne


Exeter, New Hampshire, Feb. 4 (Bloomberg) -- Tyco International Ltd. plans to use a line of credit to repay $4.5 billion in commercial paper, seeking to reduce the costs of financing a breakup plan.

Tyco's shares, which had tumbled 40 percent this year, fell as much as 17 percent. Tyco said two weeks ago that it would split into four companies to resolve investor concerns that it used acquisitions to mask slower growth.

The company disclosed earlier today that it spent $8 billion in the past three fiscal years on more than 700 purchases it didn't make public. Tyco said in a statement it will use a $5.9 billion bank credit line to repurchase all of the commercial paper from its industrial businesses.

``There are market concerns because most of the (Tyco) paper is sold overnight and investors have been reluctant to hold it longer than that for several weeks,'' said Frank Rachwalski, who manages about $40 billion in debt for Scudder Kemper Investments in Chicago. He holds some short-term debt of Tyco's finance unit.

Bowing to investor demands for greater transparency, Tyco Chief Executive Dennis Kozlowski plans to split Tyco into four companies and cut its debt by about $11 billion.

The smaller acquisitions didn't need to be announced because they weren't ``material compared with the company's total assets,'' Chief Financial Officer Mark Swartz said in an interview.

Repurchases

Shares of Tyco, which is based in Bermuda and run from Exeter, New Hampshire, fell $3.03 to $32.60 in midmorning trading after dropping as low as $29.75. The company, which makes products ranging from electrical connectors to industrial valves to security systems, had lost about $46 billion in market value since December.

Tyco's 6.38 percent coupon bonds maturing in 2011 dropped $135 to $791 per $1,000 face amount, pushing the yield up to 9.76 percent, from 7.46 percent on Friday. The spread, or premium to U.S. Treasuries, widened to 480 basis points from 250 basis points, traders said.

Spreads on Tyco's 18-month floating rate debt -- that three weeks ago traded about 0.9 percentage points above Treasuries -- trades at about 2.5 percentage points, after widening to as much as 3 points, Rachwalski said.

The bank lending agreement expires in February 2003 for $3.9 billion and February 2006 for the other $2 billion.

``This raises the possibility that Tyco is aware of the difficulty it may have in rolling over its commercial paper,'' said Bill Sullivan, a money market economist at Morgan Stanley Dean Witter & Co.

Capital

Tyco also took steps to separate its finance business as part of the plan. The unit, acquired last year, will reassume the CIT brand name and limit transactions with the company, restrict the purchase of assets from Tyco and halt extensions of loans and payments of dividends to the parent company.

``This is a structural step -- to issue commercial paper due after the breakup is expected wouldn't be effective,'' said Harriet Baldwin, an analyst at Deutsche Bank, who has a ``strong buy'' rating on the stock.

Tyco Capital had an average of $9 billion of commercial paper outstanding last quarter and Tyco International had an average of $4.5 billion, according to Bloomberg data.

The commercial paper is sold directly to investors, without the use of an underwriter. Tyco also uses the short- term loan participation market, in which it raises money though unsecured loans from banks that are then sold to investors.

Commercial paper and short-term loan participations are used by companies to finance day-to-day operations and are typically backed by bank credit facilities.

(To access Tyco Capital's conference call today 1 p.m. New York time, dial (800) 230-1059, or (612) 288-0318 outside the U.S.)




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