Tyco says it will pay put on 0% convertibles due 2020 in cash

By Ronda Fears

Nashville, Tenn., Oct.18 - Tyco International said Thursday that it will pay cash for any of its zero-coupon convertible notes due 2020 that may be put back to them on Nov. 17. Analysts estimate the put value at $3.5 billion and believe the company may consider another convertible offering to finance the put payment. How the payment would be satisfied, whether in cash on hand or by raising new capital, was not specified by Tyco. The company had not responded to an inquiry by publication deadline.

Tyco was required to notify holders of how it would satisfy the put, whether in stock or cash, by Friday. Holders have until Nov. 12 to make notice to exercise the put. The put price is 75.282.

The Tyco 0% due 2020 (Baa1/A), which was issued at 74.17 in November 2000, gained 0.375 on Thursday to 75.375. Tyco's second convertible, the 0% due 2021, which was issued at 74.17 in February with a nearly identical structure, added 0.25 point to 73.625. Tyco common shares closed up 97c to $49.27.

In a recent research report, Deutsche Banc Alex. Brown convertible analysts speculated that Tyco would pay the put in cash because of the dilution impact, and might finance it with another convertible. The inflection point for whether bondholders should put the bonds is Tyco stock at just below $51.50, said Deutsche convertible analysts Jeremy Howard and Jonathan Cohen. Below that level bondholders lose theoretical value by ignoring the put. At or above $51.50, the theoretical value remains above the put price even as the put drops away.

Also Thursday, Tyco reported fiscal 2001 net income declined to $3.97 billion, or $2.17 per share, from $4.52 billion, or $2.64 per share, in fiscal 2000. Revenues for the 12 months ending Sept. 30 rose 25% to $36.3 billion from $28.9 billion. Free cash flow, excluding operating cash of Tyco Capital and before spending of about $940 million related to the TyCom Global Network, was $4.75 billion, which represents 92% of income before non-recurring charges and credits, the adoption of SAB 101 and extraordinary items.

Tyco also reiterated its earnings per share guidance for fiscal 2002 of $3.70, in a range of $3.50 to $3.90. The company noted, however, that the earnings range reflects uncertainty about the near-term outlook for the Electronics end markets and the company sees likelihood of further weakness in these end markets. Guidance for fiscal first quarter 2002 remains at 72c per share, the company said.

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