Tyco International and its lending subsidiary Tyco Capital/CIT Group drew down bank credit lines after exiting the commercial paper market, to make the international conglomerate less susceptible to rumors in the financial markets. "The drawing down on the bank lines makes us [Tyco] less susceptible to various market rumors, including those that say we have liquidity issues, which if left to grow could become a self-fulfilling prophecy," said Dennis Kozlowski, Tyco's chairman and ceo in a conference call to reassure analysts.
Tyco is repurchasing all the company's $4.5 billion commercial paper at its scheduled maturities, by drawing down on its $3.9 billion J.P. Morgan-led facility maturing in 2003 and the $2 billion line maturing February 2006. The creation of short- and intermediate-credit lines will hit the company though. The increased costs of the bank loans will reduce profit by 10 cents to 15 cents a share, Kozlowski said, but the benefits of flexibility, liquidity and protecting Tyco from rumors outweigh the costs. "Tyco has been subjected to outlandish headlines, which spook investors," he noted, pointing the smoking gun at several financial news publications.
Tyco Capital, which is planning to return to the CIT name is planning to establish new securitization facilities totaling $3 billion and draw down on its $8.5 billion credit lines, to provide coverage in excess of its CP program. A dealer group will also be established to enhance liquidity for the company's CP investors.