Tyco International's February 2003 bank debt was traded in the high 80s early last week before sinking along with the company's 4.95% notes maturing in August 2003. The name rose back to the high 80s again on Thursday after news that the Securities and Exchange Commission reportedly has cleared Tyco to spin off the CIT Group by issuing 200 million shares for between $25 and $29 a share. This move is looked at positively by investors, who noted the company's near-term liquidity issues.
The bank debt and the bonds are pari passu. But if proceeds from an asset sale are used to pay down the bank debt, or if the bank debt gets additional collateral, bank levels would rise above the corresponding bonds, traders noted. Earlier in the week, dealers were working on the name to examine how much of a write-down Tyco will have to take from CIT, which has decreased in value since Tyco acquired the company last year. Tyco announced that it would take at least a $4.5 billion charge to reflect this loss.
Both Fitch Ratings and Moody's Investors Service downgraded the company to junk levels, citing risks associated with corporate governance issues and the uncertainties surrounding the IPO of CIT. The company's spokesman said that the company looks for the sale of CIT to occur sometime after July 4. Traders estimated that it would be finished by July 8.