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Tyco Electronics' 'BBB/F2' Ratings & Positive Outlook Unaffected by Acquisition of ADC

^{Published on 2010-07-13 11:45:35 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings stated today that Tyco Electronics' acquisition of ADC Telecommunications, Inc. (ADC) does not affect the following ratings for Tyco Electronics Ltd. (NYSE: TEL) and its wholly owned subsidiary, Tyco Electronics Group S.A. (TEGSA):

--Issuer Default Rating (IDR) at 'BBB';

--Short-term IDR at 'F2';

--Commercial paper (CP) program at 'F2';

--Senior unsecured revolving credit facility (RCF) at 'BBB';

--Senior unsecured notes at 'BBB'.

The Rating Outlook is Positive. Fitch's actions affect approximately $2.4 billion of total debt (approximately $3.7 billion including the undrawn RCF).

Tyco Electronics announced this morning that it will acquire ADC for approximately $1.25 billion, including the assumption of more than $550 million of cash and $650 million of total debt. Tyco Electronics will tender for the existing shares of ADC and then affect a merger, which is expected to close in the fourth calendar quarter of 2010. Tyco Electronics plans to fund the acquisition with the issuance of approximately $250 million of senior notes and the remainder of the transaction price with available cash. Tyco Electronics had approximately $1.8 billion of available cash as of March 26, 2010. Given Tyco Electronics' Swiss incorporation, Fitch does not anticipate cash location to be a concern. Tyco Electronics plans to extinguish ADC's outstanding debt, consisting of approximately $650 million of various tranches of subordinated convertible notes, upon consummation of the merger.

ADC is a supplier of broadband connectivity products for carrier and enterprise networks with annual sales and estimated operating EBITDA of approximately $1 billion and $100 million, respectively, for the latest 12 months ended March 31, 2010. The merger should provide Tyco Electronics with cost reduction opportunities, given substantial product and market overlap. As a result, Fitch believes Tyco Electronics' cost reduction roadmap could enable the company to achieve operating margins in the mid-teens over the intermediate term.

Fitch recently revised the Rating Outlook on Tyco Electronics to Positive from Stable, which incorporates the company's use of $500 million to $1 billion of annual free cash flow for a combination of acquisitions and share repurchases, as well as the issuance of incremental debt. Pro forma for the acquisition and debt issuance, Fitch estimates total leverage (total debt to operating EBITDA) was estimated at approximately 1.5 times (x) for the latest 12 months ended March 26, 2010, while Fitch estimates interest coverage was estimated at more than 10x for the same period.

Total debt was approximately $2.4 billion, as of March, 26, 2010, and consisted of:

--Approximately $720 million of 6% senior notes due Oct. 1, 2012;

--Approximately $300 million of 5.95% senior notes due Oct. 1, 2014;

--Approximately $742 million of 6.55% senior notes due Oct. 1, 2017;

--Approximately $475 million of 7.125% senior notes due Oct. 1, 2037;

--Other debt of approximately $177 million, $101 million of which was short-term debt as of March 26, 2010.

For additional detail, please see Fitch's press release dated June 11, 2010 at [ www.fitchratings.com ].

Related Criteria:

--Corporate Rating Methodology - Nov. 24, 2009;

--Evaluating Corporate Governance - Dec. 12, 2007;

--Liquidity Considerations for Corporate Issuers -June 12, 2007;

--Short-Term Rating Criteria for Corporate Finance - June 12, 2007;

--Cash Flow Measures in Corporate Analysis - Amended - Oct. 12, 2005.

Additional information is available at '[ www.fitchratings.com ]'.

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