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Fitch Rates Tyco Electronics' $250MM Senior Notes 'BBB'; Outlook Remains Positive


Published on 2010-12-16 13:30:36 - Market Wire
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CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has assigned a rating of 'BBB' to Tyco Electronics Group S.A.'s (TEGSA) $250 million of 4.875% senior notes due 2021. Fitch rates Tyco Electronics Ltd. (NYSE: TEL), as well as TEGSA, a wholly owned subsidiary, as follows:

--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. Pro forma for this issuance, Fitch's actions affect approximately $2.7 billion of total debt (approximately $4.1 billion including the undrawn RCF).

The senior notes will be pari passu with all of Tyco Electronics' existing senior unsecured indebtedness. The senior notes also will be subject to the same package of covenants as the existing senior unsecured indebtedness, including limitations on certain liens without also securing the notes, certain sale and leaseback transactions, and the company's ability to consolidate, merge or transfer assets.

Tyco Electronics will use the net proceeds to partially fund the acquisition of ADC Telecommunications, Inc. (ADC) for approximately $1.26 billion, including the assumption of approximately $697 million of cash and cash equivalents and $651 million of total debt. Tyco Electronics is funding the remainder of the purchase price with available cash. On Dec. 9, 2010, Tyco Electronics announced the completion of the offer to purchase all of the issued and outstanding shares of common stock of ADC and subsequently merged ADC into a wholly owned subsidiary of Tyco Electronics. The completion of the acquisitions triggered a change of control event for ADC's convertible note holders, which could require Tyco Electronics to repurchase the convertible notes.

The acquisition of ADC will strengthen Tyco Electronics' broadband connectivity product portfolio for carrier and enterprise networks. The combination also should provide Tyco Electronics with cost reduction opportunities, mostly the elimination of overlapping administrative functions. As part of the company's cost reduction roadmap, Fitch believes Tyco Electronics could achieve operating margins in the mid-teens over the intermediate term. Pro forma for the issuance, Fitch estimates total leverage (total debt to operating EBITDA) was approximately 1.5 times (x) for the fiscal year ended Sept. 24, 2010, while Fitch estimates interest coverage was estimated at more than 10x for the same period.

Fitch believes liquidity was solid as of Sept. 24, 2010 and consisted of:

--Approximately $2 billion of cash and cash equivalents; and

--An undrawn $1.4 billion, five-year RCF expiring April 2012. This credit facility backs up the company's up to $1.25 billion CP program.

Further supporting liquidity is Fitch's expectation for annual free cash flow of $500 million to $1 billion through the business cycle. While legacy litigation issues essentially have been settled, the company anticipates paying its share of historical tax liabilities, upwards of $700 million, over several years. Contributions to the company's pension plans over the next several years are accommodated at existing ratings.

Aside from the $250 million of 4.875% senior notes due 2021, total debt as of Sept. 24, 2010, was approximately $2.4 billion and consisted of:

--Approximately $719 million of 6% senior notes due Oct. 1, 2012;

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

--Approximately $740 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 $179 million.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', dated Aug. 16, 2010;

--'Revisions to Rating Definitions', dated March 2009;

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

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

--'Short-term Ratings Criteria for Corporate Finance', dated June 12, 2007.

Applicable Criteria and Related Research:

Fitch Revisions to Rating Definitions: Sovereign Implications

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=432326 ]

Corporate Rating Methodology

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646 ]

Evaluating Corporate Governance

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=363502 ]

Liquidity Considerations for Corporate Issuers

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666 ]

Short-Term Ratings for Corporate Finance

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726 ]

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: [ HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS ]. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '[ WWW.FITCHRATINGS.COM ]'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

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