Though an independent fixed-income analyst believes Tyco International's bonds are likely to appreciate, a high-grade portfolio manager says he is still a long way away from wading back into the credit. Terry Dwyer, analyst at KDP Investment Advisors, believes that the charges outlined in last Wednesday's Wall Street Journal against former ceo Dennis Kozlowski are not enough on their own to prevent the credit from recovering. "The allegations are strong, there's no denying that, but Tyco is a big giant to knock off its feet. It's bigger than any one man can do. So far I have not seen any evidence that the probe relates to anyone other than former executives," he says.
Dwyer says the company clearly has enough cash to pay off its short-term debts, and though it has convertible bonds that are puttable next year, it can issue equity to pay off at least one of them. Dwyer believes that if Tyco's bonds retain investment-grade status, they will trade up into the 90s. Tyco's 6.375% notes of '11 (Ba2/BBB-) were trading at 75 last Thursday.
Mitch Stapley, portfolio manager at Fifth/Third Investment Advisors, is not so sanguine. The money manager sold its Tyco bonds in February, and has not looked back. Before buying the bonds again, Stapley needs to see major changes. "We need to see the new management come in and fade into the background. We need to see them go back to being a well-run conglomerate. We need them to stop appearing in the upper left hand corner of the Wall Street Journal," he says.