Fitch Ratings has downgraded Tyco International's senior unsecured debt to BB from BBB citing the concerns about the company's ability to execute its strategic plan, liquidity and near-term debt maturities and shortcomings in corporate governance.
The rating agency deems the departure of CEO Dennis Kozlowski, as well as repeated changes in direction, as evidence of the uncertainties and risks to the company's completion of its strategic plan. Fitch looks forward to the sale of the CIT Group in July, but the proceeds from this move are uncertain. "What we'll be looking for is the sale of CIT, both in terms of timing and amount," said Eric Ause, Fitch analyst. The report also states that the company is reliant on completing assets sales to meet its maturing debt obligations, which total roughly half of Tyco's $27 billion in debt. This figure includes $4 billion in bank debt due February 2003.
Even if Tyco is able to complete the IPO of CIT, it will still be dependent on external capital to meet its obligations and Fitch questions its ability to access the capital markets. The company's future credit profile hinges not only on the company's ability to complete the sale of CIT and address its near-term liquidity problems, but also on how Tyco deals with its free cash flow allocation to debt repayment and other uses in the future. Calls to the company's spokesman were not returned by press time.
*Moody's Investors Service has placedAlpharma's $300 million revolver, $141 million term "A" loan and $353 million term "B" loan on review for a possible downgrade from B1 as the Securities and Exchange Commission conducts a formal investigation of the company's revenue recognition practices. The Moody's review will examine how lower-than-expected operating earnings from inventory write-downs, product recalls, restructuring actions and Food and Drug Administration inspection observations will impact the company's credit protections. Calls toMatthew Farrell, executive v.p. and cfo, were referred to an investor relations spokeswoman, who did not return calls by press time.
*Standard & Poor's has assigned Metaldyne's new $350 million senior secured term loan "D" and $300 million senior subordinated notes ratings of BB- and B-, respectively, and has placed both on CreditWatch positive in anticipation of the sale of TriMas. Metaldyne plans to sell its 66% stake in TriMas to Heartland Industrial Partners for $840 million and a reduction in debt. Metaldyne will use the proceeds to reduce leverage, and S&P is looking for a decrease in debt-to-EBITDA ratio from 5.3 times to 4.4 times for the proposed transaction. The new debt will be used to refinance existing indebtedness.
Kurt Ruecke, company spokesman said that Metaldyne has completed the sale of TriMas and is now "aggressively looking to build its core automotive business." The company is considering a number of acquisition candidates, but Ruecke declined to be specific about any deals in the pipeline.